Cyclicality and Firm Size in Private Firm Defaults

Thais Lærkholm Jensen, David Lando, Mamdouh Medhat

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Abstrakt

The Basel II/III and CRD IV Accords reduce capital charges on bank loans to smaller firms by assuming that the default probabilities of smaller firms are less sensitive to macroeconomic cycles. We test this assumption in a default intensity framework using a large sample of bank loans to private Danish firms. We find that controlling only for size, the default probabilities of small firms are, in fact, less cyclical than the default probabilities of large firms. However, accounting for firm characteristics other than size, we find that the default probabilities of small firms are equally cyclical or even more cyclical than the default probabilities of large firms. These results hold using a multiplicative Cox model as well as an additive Aalen model with time-varying coefficients.
OriginalsprogEngelsk
TidsskriftInternational Journal of Central Banking
Vol/bind13
Udgave nummer4
Sider (fra-til)97-145
Antal sider49
StatusUdgivet - 2017

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