Assessment of Corporate Sector Value and Vulnerability

Assessment of Corporate Sector Value and Vulnerability

Author: Dale F. Gray

Publisher: World Bank Publications

Published: 1999-01-01

Total Pages: 58

ISBN-13: 9780821346037

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"Once equity has fallen below a certain threshold for a significant period of time, it triggers a suspension of debt payments and distorts incentives for equity holds and managers. But what is a significant period of time? You or I could pay a $10 million annual mortgage payment for a day or two but not two or three months. Similarly, owners and managers can withstand short periods of illiquidity or negative equity but not longer ones. At some point in time, the inability to meet obligations and perception of continued difficulties creates a system-wide breakdown in debt payments." The relationship between the corporate sector and a country's macroeconomy is receiving increased attention from policymakers and investors, especially those affected by the Asian crisis. Recent crises have pointed out the importance of improving our understanding of the links between the corporate sector, the financial sector, and the macroeconomy in a world of volatile capital flows. Assessing the vulnerability of the corporate sector and its links to financial and exchange rate crisis is important for both improved surveillance and in the design of policies in crisis countries. However, the analytical and operational tools available to policymakers and investors to analyze this problem have been limited. This Technical Paper was prepared as part of an initiative to develop new frameworks which can integrate state-of-the art corporate finance principles, macroeconomic, and financial sector analysis. An innovative yet practical framework is provided which has numerous applications for assessing corporate sector vulnerability, design of corporate restructuring strategies, as well as financial sector and macroeconomic policies. It will be of interest to bankers, economic policymakers, corporate finance specialists, and macroeconomists.


Book Synopsis Assessment of Corporate Sector Value and Vulnerability by : Dale F. Gray

Download or read book Assessment of Corporate Sector Value and Vulnerability written by Dale F. Gray and published by World Bank Publications. This book was released on 1999-01-01 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Once equity has fallen below a certain threshold for a significant period of time, it triggers a suspension of debt payments and distorts incentives for equity holds and managers. But what is a significant period of time? You or I could pay a $10 million annual mortgage payment for a day or two but not two or three months. Similarly, owners and managers can withstand short periods of illiquidity or negative equity but not longer ones. At some point in time, the inability to meet obligations and perception of continued difficulties creates a system-wide breakdown in debt payments." The relationship between the corporate sector and a country's macroeconomy is receiving increased attention from policymakers and investors, especially those affected by the Asian crisis. Recent crises have pointed out the importance of improving our understanding of the links between the corporate sector, the financial sector, and the macroeconomy in a world of volatile capital flows. Assessing the vulnerability of the corporate sector and its links to financial and exchange rate crisis is important for both improved surveillance and in the design of policies in crisis countries. However, the analytical and operational tools available to policymakers and investors to analyze this problem have been limited. This Technical Paper was prepared as part of an initiative to develop new frameworks which can integrate state-of-the art corporate finance principles, macroeconomic, and financial sector analysis. An innovative yet practical framework is provided which has numerous applications for assessing corporate sector vulnerability, design of corporate restructuring strategies, as well as financial sector and macroeconomic policies. It will be of interest to bankers, economic policymakers, corporate finance specialists, and macroeconomists.

The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-wide Risk Transfer

The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-wide Risk Transfer

Author: Michael T. Gapen

Publisher: INTERNATIONAL MONETARY FUND

Published: 2004-07-01

Total Pages: 43

ISBN-13: 9781451854411

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In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody's MfRisk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.


Book Synopsis The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-wide Risk Transfer by : Michael T. Gapen

Download or read book The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-wide Risk Transfer written by Michael T. Gapen and published by INTERNATIONAL MONETARY FUND. This book was released on 2004-07-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody's MfRisk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.

Assessing Corporate Vulnerabilities in Indonesia

Assessing Corporate Vulnerabilities in Indonesia

Author: Mr.Jorge A Chan-Lau

Publisher: International Monetary Fund

Published: 2017-04-26

Total Pages: 22

ISBN-13: 1475595131

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Under adverse macroeconomic conditions, the potential realization of corporate sector vulnerabilities could pose major risks to the economy. This paper assesses corporate vulnerabilities in Indonesia by using a Bottom-Up Default Analysis (BuDA) approach, which allows projecting corporate probabilities of default (PDs) under different macroeconomic scenarios. In particular, a protracted recession and the ensuing currency depreciation could erode buffers on corporate balance sheets, pushing up the probabilities of default (PDs) in the corporate sector to the high levels observed during the Global Financial Crisis. While this is a low-probability scenario, the results suggest the need to closely monitor vulnerabilities and strengthen contingency plans.


Book Synopsis Assessing Corporate Vulnerabilities in Indonesia by : Mr.Jorge A Chan-Lau

Download or read book Assessing Corporate Vulnerabilities in Indonesia written by Mr.Jorge A Chan-Lau and published by International Monetary Fund. This book was released on 2017-04-26 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under adverse macroeconomic conditions, the potential realization of corporate sector vulnerabilities could pose major risks to the economy. This paper assesses corporate vulnerabilities in Indonesia by using a Bottom-Up Default Analysis (BuDA) approach, which allows projecting corporate probabilities of default (PDs) under different macroeconomic scenarios. In particular, a protracted recession and the ensuing currency depreciation could erode buffers on corporate balance sheets, pushing up the probabilities of default (PDs) in the corporate sector to the high levels observed during the Global Financial Crisis. While this is a low-probability scenario, the results suggest the need to closely monitor vulnerabilities and strengthen contingency plans.

The Contingent Claims Approach to Corporate Vulnerability Analysis

The Contingent Claims Approach to Corporate Vulnerability Analysis

Author: Michael Gapen

Publisher:

Published: 2008

Total Pages: 44

ISBN-13:

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In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody`s M/Risk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.


Book Synopsis The Contingent Claims Approach to Corporate Vulnerability Analysis by : Michael Gapen

Download or read book The Contingent Claims Approach to Corporate Vulnerability Analysis written by Michael Gapen and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody`s M/Risk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.

Corporate Sector Vulnerabilities in Ireland

Corporate Sector Vulnerabilities in Ireland

Author: Nir Klein

Publisher: International Monetary Fund

Published: 2016-11-08

Total Pages: 31

ISBN-13: 1475552173

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The paper uses both macro- and micro-level data to assess how has the financial health of the Irish non-financial corporate (NFC) sector changed in the post financial crisis period. The analysis suggests that vulnerabilities have generally declined in recent years, but the NFC sector and especially smaller domestic firms remain vulnerable. A sensitivity analysis indicates that a non-extreme shock, which comprises a decline in profitability and an increase in interest rates, is likely to push many firms into a vulnerable state and that the share of firms with interest cover ratio of lower than one would triple to nearly fifty percent, largely reflecting the deterioration in the financial health of small firms. In such a scenario, the share of risky debt would increase to the level observed during the financial crisis, resulting in a significant increase in new corporate defaults.


Book Synopsis Corporate Sector Vulnerabilities in Ireland by : Nir Klein

Download or read book Corporate Sector Vulnerabilities in Ireland written by Nir Klein and published by International Monetary Fund. This book was released on 2016-11-08 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper uses both macro- and micro-level data to assess how has the financial health of the Irish non-financial corporate (NFC) sector changed in the post financial crisis period. The analysis suggests that vulnerabilities have generally declined in recent years, but the NFC sector and especially smaller domestic firms remain vulnerable. A sensitivity analysis indicates that a non-extreme shock, which comprises a decline in profitability and an increase in interest rates, is likely to push many firms into a vulnerable state and that the share of firms with interest cover ratio of lower than one would triple to nearly fifty percent, largely reflecting the deterioration in the financial health of small firms. In such a scenario, the share of risky debt would increase to the level observed during the financial crisis, resulting in a significant increase in new corporate defaults.

Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic

Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic

Author: Nordine Abidi

Publisher: International Monetary Fund

Published: 2022-04-29

Total Pages: 26

ISBN-13:

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This paper analyzes corporate vulnerabilities in the Middle East, North Africa and Pakistan (MENAP hereafter) in the wake of the COVID-19 pandemic shock. Using a sample of nearly 700 firms from eleven countries in MENAP, we assess the non-financial corporate (NFC) sector’s liquidity and solvency risk and viability over the medium term under different stress test scenarios. Our findings suggest that the health crisis has exacerbated vulnerabilities in the corporate sector, though the effects are heterogenous across the region. Small firms, which entered the pandemic in a more vulnerable position, would remain under high liquidity stress over the medium term, putting a substantial share of these firms’ debt at risk of default. Similarly, liquidity needs of firms in contact-intensive sectors have also worsened and would remain elevated in 2022-23. We also show that an adverse scenario of subdued growth and premature withdrawal of policy support would impair the capacity to service interest expenses, especially among small firms, resulting in higher insolvency risk. Overall, our results indicate that some segments of the MENAP corporate sector could remain reliant on policy support during the recovery phase and that structural reforms are critical to save distressed but viable firms from bankruptcy and ensure an efficient liquidation of “zombie” firms.


Book Synopsis Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic by : Nordine Abidi

Download or read book Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic written by Nordine Abidi and published by International Monetary Fund. This book was released on 2022-04-29 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes corporate vulnerabilities in the Middle East, North Africa and Pakistan (MENAP hereafter) in the wake of the COVID-19 pandemic shock. Using a sample of nearly 700 firms from eleven countries in MENAP, we assess the non-financial corporate (NFC) sector’s liquidity and solvency risk and viability over the medium term under different stress test scenarios. Our findings suggest that the health crisis has exacerbated vulnerabilities in the corporate sector, though the effects are heterogenous across the region. Small firms, which entered the pandemic in a more vulnerable position, would remain under high liquidity stress over the medium term, putting a substantial share of these firms’ debt at risk of default. Similarly, liquidity needs of firms in contact-intensive sectors have also worsened and would remain elevated in 2022-23. We also show that an adverse scenario of subdued growth and premature withdrawal of policy support would impair the capacity to service interest expenses, especially among small firms, resulting in higher insolvency risk. Overall, our results indicate that some segments of the MENAP corporate sector could remain reliant on policy support during the recovery phase and that structural reforms are critical to save distressed but viable firms from bankruptcy and ensure an efficient liquidation of “zombie” firms.

The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability

The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability

Author: Toni Gravelle

Publisher: INTERNATIONAL MONETARY FUND

Published: 2005-12-01

Total Pages: 17

ISBN-13: 9781451862508

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This paper describes a corporate sector vulnerability indicator, the expected number of defaults (END), based on the joint occurrence of defaults among a number of firms and/or institutions. The END indicator is general enough to assess systemic risk in the corporate and financial sectors, as well as systemic sovereign risk; and is also forward looking as it is constructed using information implied by financial securities prices. Using equity prices and balance-sheet data, we calculate the END to assess systemic risk in the corporate sector in Korea, Malaysia, and Thailand. We also discuss how the END systemic risk indicator overcomes some of the shortcomings of other vulnerability indicators.


Book Synopsis The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability by : Toni Gravelle

Download or read book The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability written by Toni Gravelle and published by INTERNATIONAL MONETARY FUND. This book was released on 2005-12-01 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper describes a corporate sector vulnerability indicator, the expected number of defaults (END), based on the joint occurrence of defaults among a number of firms and/or institutions. The END indicator is general enough to assess systemic risk in the corporate and financial sectors, as well as systemic sovereign risk; and is also forward looking as it is constructed using information implied by financial securities prices. Using equity prices and balance-sheet data, we calculate the END to assess systemic risk in the corporate sector in Korea, Malaysia, and Thailand. We also discuss how the END systemic risk indicator overcomes some of the shortcomings of other vulnerability indicators.

Assessing China’s Corporate Sector Vulnerabilities

Assessing China’s Corporate Sector Vulnerabilities

Author: MissMali Chivakul

Publisher: International Monetary Fund

Published: 2015-03-30

Total Pages: 28

ISBN-13: 1484308786

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This paper documents and assesses the risk stemming from rising corporate indebtedness in China using a firm-level dataset of listed firms. It finds that while leverage on average is not high, there is a fat tail of highly leveraged firms accounting for a significant share of total corporate debt, mainly concentrated in the real estate and construction sector and state-owned enterprises in general. The real estate and construction firms tend to face lower borrowing costs and could withstand a modest increase of interest rate shocks despite their high leverage. The corporate sector is however vulnerable to a significant slowdown in the real estate and construction sector. Our sensitivity analysis suggests that the share of debt that would be in financial distress would rise to about a quarter of total listed firm debt in the event of a 20 percent decline in real estate and construction profits.


Book Synopsis Assessing China’s Corporate Sector Vulnerabilities by : MissMali Chivakul

Download or read book Assessing China’s Corporate Sector Vulnerabilities written by MissMali Chivakul and published by International Monetary Fund. This book was released on 2015-03-30 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents and assesses the risk stemming from rising corporate indebtedness in China using a firm-level dataset of listed firms. It finds that while leverage on average is not high, there is a fat tail of highly leveraged firms accounting for a significant share of total corporate debt, mainly concentrated in the real estate and construction sector and state-owned enterprises in general. The real estate and construction firms tend to face lower borrowing costs and could withstand a modest increase of interest rate shocks despite their high leverage. The corporate sector is however vulnerable to a significant slowdown in the real estate and construction sector. Our sensitivity analysis suggests that the share of debt that would be in financial distress would rise to about a quarter of total listed firm debt in the event of a 20 percent decline in real estate and construction profits.

The Contingent Claims Approach to Corporate Vulnerability Analysis

The Contingent Claims Approach to Corporate Vulnerability Analysis

Author:

Publisher:

Published: 2004

Total Pages: 50

ISBN-13:

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Book Synopsis The Contingent Claims Approach to Corporate Vulnerability Analysis by :

Download or read book The Contingent Claims Approach to Corporate Vulnerability Analysis written by and published by . This book was released on 2004 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Utility Pricing and the Poor

Utility Pricing and the Poor

Author: Julian A. Lampietti

Publisher: World Bank Publications

Published: 2001-01-01

Total Pages: 56

ISBN-13: 9780821349229

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'Utility Pricing and the Poor' evaluates the 1999 electricity tariff increase and the potential for improved water-sector cost recovery, with a particular focus on service accessibility and affordability for the poor. A two-stage approach is recommended. In the first stage, revenues should be increased by ensuring payment from households that have reliable service but are not paying their bills. After collection capacity is strengthened, the utility should implement a program of tariff adjustment, based on improved service and meter-based billing.


Book Synopsis Utility Pricing and the Poor by : Julian A. Lampietti

Download or read book Utility Pricing and the Poor written by Julian A. Lampietti and published by World Bank Publications. This book was released on 2001-01-01 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Utility Pricing and the Poor' evaluates the 1999 electricity tariff increase and the potential for improved water-sector cost recovery, with a particular focus on service accessibility and affordability for the poor. A two-stage approach is recommended. In the first stage, revenues should be increased by ensuring payment from households that have reliable service but are not paying their bills. After collection capacity is strengthened, the utility should implement a program of tariff adjustment, based on improved service and meter-based billing.