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

Journal of Applied Finance, Spring/Summer 2012, Volume 22, Issue 1, pp. 70-87

Posted: 29 Jul 2012

See all articles by Lars Oxelheim

Lars Oxelheim

Research Institute of Industrial Economics (IFN); University of Agder; Knut Wicksell Center for Financial Studies, Lund University

Clas Wihlborg

Chapman University; University West

Multiple version iconThere are 3 versions of this paper

Date Written: 2012

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.

Keywords: Credit risk, distressed securities, macroeconomic factors, default, GM, Ford

Suggested Citation

Oxelheim, Lars and Wihlborg, Clas, Corporate Distress and Restructuring with Macroeconomic Fluctuations: The Cases of GM and Ford (2012). Journal of Applied Finance, Spring/Summer 2012, Volume 22, Issue 1, pp. 70-87, Available at SSRN: https://ssrn.com/abstract=2119198

Lars Oxelheim (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
+46 8 665 4527 (Phone)
+46 8 665 4599 (Fax)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

Knut Wicksell Center for Financial Studies, Lund University ( email )

P.O.Box 7080
S-220 07 Lund
Sweden
+46462228744 (Phone)

Clas Wihlborg

Chapman University ( email )

333 N. Glassell
Orange, CA 92866
United States
+17147447630 (Phone)

University West ( email )

Trollhättan, 46186
Sweden

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