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Debt, Financial Fragility, and Systemic Risk$
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E. Philip Davis

Print publication date: 1995

Print ISBN-13: 9780198233312

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198233310.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 28 November 2021

Financial Fragility in the Corporate Sector

Financial Fragility in the Corporate Sector

(p.32) 2 Financial Fragility in the Corporate Sector
Debt, Financial Fragility, and Systemic Risk

E. Philip Davis (Contributor Webpage)

Oxford University Press

This chapter assesses the causes and implications of trends up to the early 1990s in debt and default in the corporate sectors of the major OECD countries, namely the USA, UK, Canada, Germany, Japan, and France. The data show a sharp rise in defaults in the Anglo‐Saxon countries and France over the 1980s, which is echoed only partially in Germany and in Japan. These patterns in turn can be related to changes in corporate indebtedness, modified by the nature of financial systems; the main reasons for such shifts are examined. The chapter is structured as follows; the first section presents balance‐sheet data for the corporate sector in the six countries. The second offers an outline of theories of corporate debt and balance‐sheet structure as presented in the literature, in particular, as they relate to default. The third probes the nature of default, its costs, and implications. The analysis of this section has broader applications to both households and financial institutions. The fourth and fifth sections interpret empirical patterns (levels and changes in leverage) in the light of theory, while the sixth seeks to estimate the empirical relationship between debt and default. Interim conclusions are drawn and some policy implications are suggested in the final section.

Keywords:   balance sheets, corporate debt, corporate sector, debt, default, leverage, OECD countries, policy

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