Creditor Recovery: The Macroeconomic Dependence of Industry Equilibrium

50 Pages Posted: 9 Aug 2013 Last revised: 2 Feb 2015

Date Written: December 1, 2014


This paper reconciles the state of the economy with industry conditions in driving asset liquidation values and, therefore, recovery rates on defaulted debt securities. Evidence to date downplays the economy-wide effect on recoveries in favor of industry-, bond-market-, and control-rights-specific explanations. This paper shows that macroeconomic effects are important but operate differentially at the industry level. I find that industries whose sales growth is more correlated with GDP growth recover less during recessions. And industries that are more dependent on external finance recover less when the stock market falls. These findings expose how economy-wide shocks transmit to industry downturns; providing a framework for the role of aggregate risk in recovery risk and for macroeconomic stress testing.

Keywords: recovery rate, loss given default, credit risk, business cycle, fire sales

JEL Classification: G33, G32, G12, E32

Suggested Citation

Mora, Nada, Creditor Recovery: The Macroeconomic Dependence of Industry Equilibrium (December 1, 2014). Federal Reserve Bank of Kansas City Working Paper No. 13-06, Available at SSRN: or

Nada Mora (Contact Author)

Lebanese University ( email )

14 Badaro, Museum
P.O. Box 6573
Beirut, 6056

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