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

Oxelheim, Lars LU and Wihlborg, Clas (2012) In Journal of Applied Finance 22(1). p.71-88
Abstract
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... (More)
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. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Macroeconomics, Credit risk, Moneylenders, Securities markets, Debtor & creditor
in
Journal of Applied Finance
volume
22
issue
1
pages
71 - 88
publisher
Financial Management Association International (FMA)
ISSN
1534-6668
language
English
LU publication?
yes
id
11066a12-7688-4c2a-869d-9b9da2f2681e (old id 2223760)
date added to LUP
2011-12-07 13:06:56
date last changed
2016-08-29 16:23:59
@article{11066a12-7688-4c2a-869d-9b9da2f2681e,
  abstract     = {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.},
  author       = {Oxelheim, Lars and Wihlborg, Clas},
  issn         = {1534-6668},
  keyword      = {Macroeconomics,Credit risk,Moneylenders,Securities markets,Debtor & creditor},
  language     = {eng},
  number       = {1},
  pages        = {71--88},
  publisher    = {Financial Management Association International (FMA)},
  series       = {Journal of Applied Finance},
  title        = {Corporate Distress and Restructuring with Macroeconomic Fluctuations: The Cases of GM and Ford},
  volume       = {22},
  year         = {2012},
}