Insights #16: Are fears of rising corporate distress warranted? A sectoral perspective

A review of contemporary measures of bankruptcy risks in 21 economies shows they vary markedly across sectors. In Q2 2023, for example, 23% of healthcare firms showed a negative Altman Z’’-Score, a commonly used metric of bankruptcy risk. Meanwhile, this was the case for only 5% of utility companies. With the notable exception of the healthcare sector, surprisingly, these percentages have barely risen in recent years. But this may still be the calm before the storm. As higher market interest rates inflate corporate interest expenses, more firms could turn into ‘zombies’ and then witness rising risks of bankruptcy (Altman Z’’-Scores below zero). Monitoring such transitions is necessary going forward.

3 Feb 2024 · Sára Czégé, Camilla Erencin, Simon J. Evenett, Alexander Gruber, Adam Novak and Felix Reitz