Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
The Global Latent Risk Factor in Corporate Debt Distress: Frailty and Spillover Effects
Yanru Lee
The Hoover Institution, Stanford University, United States of America
This paper employs a dataset containing a comprehensive international coverage of corporate default events. The dataset is primarily constructed using large language models on newspaper articles based on a dictionary of keywords that reflect corporate debt distress. Based on this dataset, I show strong evidence of a common global latent risk (frailty) factor that impacts corporate debt distress risk worldwide. The global latent risk factor identifies substantial common variation among separately estimated dynamic latent risk (frailty) factors of firms at the country level. Estimations of country frailty factors control for observable firm fundamentals capturing systemic risk and omitted macroeconomic factors. Commonalities among country frailty factors highlight global systemic risk. Observable global factors and financing variables can only explain up to 25% of global frailty, indicating the vulnerability of global corporate credit markets to common latent systemic risk. The findings also detect cross-country corporate default risk spillovers, underscoring the international interconnectedness of corporate distress risk.
