Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Lars Oxelheim () and Clas Wihlborg ()
Additional contact information
Lars Oxelheim: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, Se-102 15 Stockholm, Sweden
Clas Wihlborg: Chapman University, Postal: USA, and Copenhagen Business School, Denmark

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 1996–2005. 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

JEL-codes: G11; G32; G33; G34; L16; L62

30 pages, December 9, 2009

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