Firm Default and Aggregate Fluctuations

44 Pages Posted: 13 Aug 2008

See all articles by Tor Jacobson

Tor Jacobson

Sveriges Riksbank - Research Division

Rikard Kindell

Handelsbanken

Jesper Lindé

Sveriges Riksbank - Research Division

Kasper Roszbach

Norges Bank - Research Department; University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 5 versions of this paper

Date Written: September 19, 2008

Abstract

This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms' relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level.

Keywords: Default, default-risk model, business cycles, aggregate fluctuations, microdata, logit, firm-specific variables, macroeconomic variables

JEL Classification: C35, C41, C52, E44, G21, G33

Suggested Citation

Jacobson, Tor and Kindell, Rikard and Linde, Jesper and Roszbach, Kasper F., Firm Default and Aggregate Fluctuations (September 19, 2008). FRB of Philadelphia Working Paper No. 08-21, Available at SSRN: https://ssrn.com/abstract=1170442 or http://dx.doi.org/10.2139/ssrn.1170442

Tor Jacobson

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden
+46 8 787 0000 (Phone)

HOME PAGE: www.riksbank.com

Rikard Kindell

Handelsbanken ( email )

United States

Jesper Linde

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden
+46 8 787 0873 (Phone)

HOME PAGE: http://www.riksbank.com

Kasper F. Roszbach (Contact Author)

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

University of Groningen - Faculty of Economics and Business ( email )

Department of Economics, Econometrics and Finance
Nettelbosje 2
Groningen, NL 9747 AE
Netherlands

HOME PAGE: http://www.rug.nl/staff/k.f.roszbach/

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