Corporate Credit Risk Modelling and the Macroeconomy

29 Pages Posted: 9 Dec 2004

See all articles by Tor Jacobson

Tor Jacobson

Sveriges Riksbank - Research Division

Kenneth Carling

Uppsala University

Jesper Lindé

Sveriges Riksbank - Research Division

Kasper Roszbach

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

Abstract

Despite a surge in the research efforts put into modelling credit risk during the past decade, few studies have incorporated the impact that macroeconomic conditions have on business defaults. In this paper, we estimate a duration model to explain the survival time to default for borrowers in the business loan portfolio of a major Swedish bank over the period 1994-2000. The model takes both firm-specific characteristics, such as accounting ratios and payment behaviour, loan-related information, and the prevailing macroeconomic conditions into account. The output gap, the yield curve and consumers' expectations of future economic development have significant explanatory power for the default risk of firms. We also compare our model with a frequently used model of firm default risk that conditions only on firm-specific information. The comparison shows that while the latter model can make a reasonably accurate ranking of firms' according to default risk, our model, by taking macro conditions into account, is also able to account for the absolute level of (default, and thus also credit) risk.

Keywords: Firm default, default risk, credit risk, corporate loans, duration model, survival, macroeconomy

JEL Classification: C23, C24, C25, C41, E44, G21, G33, L25.

Suggested Citation

Jacobson, Tor and Carling, Kenneth and Linde, Jesper and Roszbach, Kasper F., Corporate Credit Risk Modelling and the Macroeconomy. Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=630082 or http://dx.doi.org/10.2139/ssrn.630082

Tor Jacobson

Sveriges Riksbank - Research Division ( email )

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

HOME PAGE: www.riksbank.com

Kenneth Carling

Uppsala University ( email )

Office of Labour Market Policy Evaluation
SE-751 20 Uppsala
Sweden
+46-18-4717087 (Phone)

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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