TY - JOUR
T1 - Firms in financial distress
T2 - evidence from inter-firm payment networks with volatility driven by ‘animal spirits’
AU - Stellian, Rémi
AU - Penagos, Gabriel I.
AU - Danna-Buitrago, Jenny P.
N1 - Publisher Copyright:
© 2020, Springer-Verlag GmbH Germany, part of Springer Nature.
PY - 2021/1
Y1 - 2021/1
N2 - This paper elaborates an agent-based model of a pure market economy to provide theoretical evidence on how volatility-induced changes in inter-firm payment networks affect the financial distress of firms. This volatility is driven by ‘animal spirits’ in that it arises from the feelings of optimism/pessimism independently of rational decision-making, and influences the liquidity available to each firm through the inter-firm payment network; consequently, some firms may enter financial distress. The model first determines the inter-firm payment network. Then, a mean-reverting square-root process introduces volatility into the inter-firm payment network through firms’ propensity to pay suppliers according to the payments that firms expect to receive from customers. The model is calibrated for compatibility with relevant macro- and microeconomic stylized facts. According to computational experiments, financial distress in the business sector is minimized when feelings of optimism/pessimism generate the lowest volatility in firms’ propensity to pay suppliers. In addition, this volatility must materialize around an intermediate value of firms’ propensity to pay suppliers, and firms must keep this intermediate value over time.
AB - This paper elaborates an agent-based model of a pure market economy to provide theoretical evidence on how volatility-induced changes in inter-firm payment networks affect the financial distress of firms. This volatility is driven by ‘animal spirits’ in that it arises from the feelings of optimism/pessimism independently of rational decision-making, and influences the liquidity available to each firm through the inter-firm payment network; consequently, some firms may enter financial distress. The model first determines the inter-firm payment network. Then, a mean-reverting square-root process introduces volatility into the inter-firm payment network through firms’ propensity to pay suppliers according to the payments that firms expect to receive from customers. The model is calibrated for compatibility with relevant macro- and microeconomic stylized facts. According to computational experiments, financial distress in the business sector is minimized when feelings of optimism/pessimism generate the lowest volatility in firms’ propensity to pay suppliers. In addition, this volatility must materialize around an intermediate value of firms’ propensity to pay suppliers, and firms must keep this intermediate value over time.
KW - Agent-based model
KW - Animal spirits
KW - Financial distress
KW - Inter-firm payment network
KW - Mean-reverting square-root process
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85081549196&partnerID=8YFLogxK
U2 - 10.1007/s11403-020-00285-3
DO - 10.1007/s11403-020-00285-3
M3 - Article
AN - SCOPUS:85081549196
SN - 1860-711X
VL - 16
SP - 59
EP - 101
JO - Journal of Economic Interaction and Coordination
JF - Journal of Economic Interaction and Coordination
IS - 1
ER -