A Failure-Rate Model for the Danish Corporate Sector

Working paper no 16, 2004

Authors Lykke, Morten; Pedersen, Kenneth Juhl; Vinther, Heidi Mølgaard
Subject Danish Economy; Financial markets and financial stability; Financial stability; Business enterprises and households
Type Working paper
Year 2004
Published 5 May 2004
This paper presents an accounting-based model developed in Danmarks Nationalbank to predict failure rates in the Danish corporate sector. The model serves as a tool in analysing the Danish corporate sector in relation to financial stability. The main purpose is to assess the banks' credit risk on the corporate sector. By using logistic regression the model is estimated on 300,000 accounts of the Danish corporate sector published in the period from 1995 to 1999. Nine indicators from the accounts, including more qualitative information about the company, are significant in predicting the failure rates of Danish companies. Besides the basic model, models at sector level and by number of employees in the company are estimated.