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Corporate Distress and Restructuring with Macroeconomic Fluctuations: The Cases of GM and Ford

På svenska

Author

  • Lars Oxelheim
  • Clas Wihlborg

Summary, in English

Although macroeconomic factors are part of several models for evaluation of credit risk, there is little effort to distinguish between effects of such factors and "intrinsic" factors on changes in credit risk. We argue that lenders, management, courts and traders in distressed securities would benefit from information about the degree to which macroeconomic factors affect changes in the likelihood of default in order to determine an effective approach to resolving a distress situation. A model for decomposing changes in default predictions into macroeconomic and intrinsic factors is presented. The decomposition is firm-specific in order to capture the differential impact of the macro environment on firms. The model is applied to Z-scores of GM and Ford during the period 1996-2008. The macro-economy has affected the two firms in different ways with implications for managements' and creditors' approaches to restoring their financial health.

Publishing year

2012

Language

English

Pages

71-88

Publication/Series

Journal of Applied Finance

Volume

22

Issue

1

Document type

Journal article

Publisher

Financial Management Association International (FMA)

Topic

  • Business Administration

Keywords

  • Macroeconomics
  • Credit risk
  • Moneylenders
  • Securities markets
  • Debtor & creditor

Status

Published

Research group

  • Knut Wicksell Centre for Financial Studies

ISBN/ISSN/Other

  • ISSN: 1534-6668