NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring the Financial Soundness of U.S. Firms, 1926-2012

Andrew G. Atkeson, Andrea L. Eisfeldt, Pierre-Olivier Weill

NBER Working Paper No. 19204
Issued in July 2013
NBER Program(s):   AP   CF   EFG   ME

Building on the Merton (1974) and Leland (1994) structural models of credit risk, we develop a simple, transparent, and robust method for measuring the financial soundness of individual firms using data on their equity volatility. We use this method to retrace quantitatively the history of firms' financial soundness during U.S. business cycles over most of the last century. We highlight three main findings. First, the three worst recessions between 1926 and 2012 coincided with insolvency crises, but other recessions did not. Second, fluctuations in asset volatility appear to drive variation in firms' financial soundness. Finally, the financial soundness of financial firms largely resembles that of nonfinancial firms.

download in pdf format
   (2784 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19204

Users who downloaded this paper also downloaded these:
Fleckenstein, Longstaff, and Lustig w19238 Deflation Risk
Goldberg w19497 Banking Globalization, Transmission, and Monetary Policy Autonomy
Barberis, Greenwood, Jin, and Shleifer w19189 X-CAPM: An Extrapolative Capital Asset Pricing Model
Petrosky-Nadeau and Zhang w19207 Unemployment Crises
Jurado, Ludvigson, and Ng w19456 Measuring Uncertainty
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us