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Stress Testing Corporate Earnings of US Companies

  • Davide BenedettiEmail author
  • Rastislav MolnarEmail author
Chapter
Part of the Lecture Notes on Data Engineering and Communications Technologies book series (LNDECT, volume 30)

Abstract

This paper defines a stress testing framework for corporations. Stress testing is well known in the financial sector, however it is not well established in enterprise risk management for corporations. We believe stress testing, if adapted for corporations, could play a key role in their risk management. We will test proposed framework on US publicly traded companies using two events of interest, the dot-com bubble of 2001 and financial crisis of 2008. We use OLS, Elastic-Net and Partial Least Squares Regressions (PLSR) to predict the change of corporate earnings during these events. Results suggest our proposed factors in combination with Elastic-Net or PLSR are able to predict movements of earnings better than standard approaches and OLS methodologies. In our opinion, such measurements should be done by all companies in order to make stakeholders aware what can happen if crisis hits the economy and prepare for such eventuality.

Keywords

Stress testing Enterprise risk management Dot-com-bubble Financial crisis Earnings Forecast 

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Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.Imperial College Business SchoolLondonUK

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