Corporate credit risk modeling and the macroeconomy

Document identifier: oai:dalea.du.se:2598
Access full text here:10.1016/j.jbankfin.2006.06.012
Keyword: Social Sciences, Economics and Business, Samhällsvetenskap, Ekonomi och näringsliv, Firm default; default risk; credit risk; corporate loans; duration model; survival; macroeconomy, Kreditriskmodellering
Publication year: 2007
Relevant Sustainable Development Goals (SDGs):
SDG 10 Reduced inequalitiesSDG 8 Decent work and economic growth
The SDG label(s) above have been assigned by OSDG.ai

Abstract:

Despite a surge in the research efforts put into modeling credit and default 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 risk. 

Authors

Kenneth Carling

Högskolan Dalarna; Statistik
Other publications >>

Tor Jacobson

Other publications >>

Jesper Lindé

Other publications >>

Kasper Roszbach

Other publications >>

Record metadata

Click to view metadata