Business and Financial Indicators: What are theDeterminants of Default Probability Changes?

This paper investigates some common determinants of default probability changes ofindividual firms using Standard & Poor's ratings database. We analyze and quantify the re-sponses of hazard rates to changes in various economic variables, namely financial markets,business cycle and credit indicators, and examine their persistency. First, we show that in-cluding non-financial information largely improves the poor explanatory power of financial-based factor models. More importantly, in comparison with market factors, business andcredit factors become dominant as the issuer quality decreases. Second, we highlight thebenefits of past information.[...]