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Corporate credit risk modeling and the macroeconomy
Uppsala University, Units outside the University, Office of Labour Market Policy Evaluation.
2007 (English)In: Journal of Banking & Finance, ISSN 0378-4266, Vol. 31, no 3, 845-868 p.Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
2007. Vol. 31, no 3, 845-868 p.
Keyword [en]
firm default, default risk, credit risk, corporate loans, duration model, survival, macroeconomy
National Category
Economics and Business
URN: urn:nbn:se:uu:diva-150907DOI: 10.1016/j.jbankfin.2006.06.012ISI: 000245293000017OAI: oai:DiVA.org:uu-150907DiVA: diva2:409353
Available from: 2011-04-08 Created: 2011-04-07 Last updated: 2011-04-08Bibliographically approved

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ReferencesLink to record
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