Corporate Sector Vulnerabilities in Ireland

32 Pages Posted: 9 Dec 2016

See all articles by Nir Klein

Nir Klein

International Monetary Fund (IMF)

Date Written: November 2016

Abstract

The paper uses both macro- and micro-level data to assess how has the financial health of the Irish non-financial corporate (NFC) sector changed in the post financial crisis period. The analysis suggests that vulnerabilities have generally declined in recent years, but the NFC sector and especially smaller domestic firms remain vulnerable. A sensitivity analysis indicates that a non-extreme shock, which comprises a decline in profitability and an increase in interest rates, is likely to push many firms into a vulnerable state and that the share of firms with interest cover ratio of lower than one would triple to nearly fifty percent, largely reflecting the deterioration in the financial health of small firms. In such a scenario, the share of risky debt would increase to the level observed during the financial crisis, resulting in a significant increase in new corporate defaults.

Keywords: Corporate sector, Ireland, External shocks, Interest rates, Corporate debt, Economic analysis, Sensitivity analysis, Corporate sector, financial crisis, leverage, interest rate shock, profit shock

JEL Classification: E00, G30, G20, G33, L20

Suggested Citation

Klein, Nir, Corporate Sector Vulnerabilities in Ireland (November 2016). IMF Working Paper No. 16/211, Available at SSRN: https://ssrn.com/abstract=2882645

Nir Klein (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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