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Research Institute of Industrial Economics (IFN) Working Paper Series

No 780:
Corporate Distress and Restructuring with Macroeconomic Fluctuations: The Cases of GM and Ford

Lars Oxelheim () and Clas Wihlborg ()

Abstract: Traditional methods for evaluating corporate credit risk rarely consider the impact of the macro economy on corporate value and performance. We argue that lenders and management can obtain valuable information about the need for and approach to restructuring by decomposing default predictions into "intrinsic" and macroeconomic factors. We apply a method previously used for measuring macroeconomic exposures on default predictions in order to filter out macroeconomic factors. In this paper the method is applied on an analysis of the Z-scores for GM and Ford for the period 19962005. The macro economy has affected the two firms in different ways with implications for managements' and creditors' approaches to restoring their financial health.

Keywords: Credit Risk; Creditworthiness; Z-Scores; Default Predictions; GM; Ford; Restructuring; Macroeconomic Exposure; (follow links to similar papers)

JEL-Codes: G11; G32; G33; G34; L16; L62; (follow links to similar papers)

30 pages, December 9, 2009

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