Abstract
Enormous development of firm valuation from many aspects can be seen in the recent period. One of the main fields is scoring, which provides a probability verdict about the future development of a firm: its probability of default. This article focuses on introducing macroeconomic modelling using VEC models to predict the future level of default in the Czech economy. Our results have proven a general connection between corporate defaults and the macroeconomic condition of the economy, which is going through a convergence process. The specifi c findings are new and have not been observed yet. A connection between the GDP and defaults revealed a positive relationship, which is probably a consequence of the convergence process, a development of the economy in many new fields. We have also found a long-term equilibrium among unemployment, loans, price of oil and defaults. We have revealed a higher level of defaults can be expected in 2013, which is connected with the economic contraction in the prediction period.
Highlights
Prediction of a firm’s default and analysis of its main causes is one of the perspective fields in the current business
We focus on the macro-component to reveal if there exists a connection between corporate default and macroeconomic condition in the Czech economy to predict the total number of defaults in the Czech Republic
Data for corporate defaults in the Czech Republic were obtained from the company Bisnode, which is the main provider of high-value-added data and has available the largest database of economic entities with related information
Summary
Prediction of a firm’s default and analysis of its main causes is one of the perspective fields in the current business. Scoring is a tool that can provide this kind of information about customers and suppliers – a probability of default in the 12 months This information may prevent possible damage to a firm’s stability which can come mainly from disruption of its cash flow. Our data were based on firms in all the phases, which means that we did not differentiate whether a firm was younger or older before default occurred This decision – to do not differentiate between firms’ stages – was supported by the above mentioned article by Miller and Friesen (1984), where the authors concluded that a default can appear in any stage, we rather focus on macro variables which are closely connected with defaults. The final part is devoted to empirical modelling and main findings
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