Finding Default Barrier and Optimal Cutoff Rate in KMV Structural Model based on the best Ranking of Companies
Journal Title: International Journal of Finance and Managerial Accounting - Year 2017, Vol 2, Issue 8
Abstract
According to the adverse consequences that are brought by financial distress for companies, economy and financial –monetary institutions, the use of methods that can predict the occurrence of financial failure and prevent the loss of wealth is of great importance. The major models of credit risk assessment are based on retrospective information and using the methods which use the updated market data for prediction of the probability of default can lead to the increase of the reliability of results. The purpose of this study is to obtain optimal default barrier in KMV model by using an approach based on genetic algorithm and compare the performance of the proposed model to KMV model. Research data included all data of listed companies in the Tehran stock exchange that were bankrupted from 2009 to 2014 according to the article 141 of the commercial code. In total, 25 companies were considered as distressed companies and 50 non-bankrupted companies were also selected as the control group and then results of the two models were compared. The study results showed that the performance of the presented model in prediction of bankruptcy and separating distressed from non-distressed companies is better than KMV model. At the end, the optimal cut off rate was calculated to determine whether a specific company will be bankrupt or healthy according to its probability of default. The results showed that the calculated optimal value led to 80% correct prediction in 2015.
Authors and Affiliations
Meysam Hasanzadeh, Ahmad Reza Yazdanian
Keywords
Related Articles
- EP ID EP535097
- DOI -
- Views 58
- Downloads 0
Comparison of Performance of Traditional Value at Risk Models with Switching Model in Tehran Stock Exchange
The problem of portfolio optimization has made many advances since Markowitz proposed an average-variance-based optimization. It can be said that the most important achievement of the Markowitz model was the introduction...
Investigating Bhattacharya Hypothesis about the Effect of Dividend Signal on Information Asymmetry Risk: An Earnings Transparency Approach
Information asymmetry in stock market can increase the risk of investment which in turn increases the capital cost of firms. Bhattacharya (1979) proposed a hypothesis that states dividend can act as a powerful signal in...
A Study on Relationship between Intellectual Capital and Refined EVA in Insurance Companies as Member of Tehran Stock Exchange
Considering necessity of recognizing the knowledge-based economy and achieving its foundations in Iran, the main issue of this research is to clarify the relationship between intellectual capital and Refined EVA in insur...
The Effect of Internal Control Weakness on Investment Efficiency of Companies Listed in Tehran Stock Exchange
This study explores the effect of internal control weakness on investment efficiency of companies listed in Tehran Stock Exchange. The statistical population included all companies listed in Tehran Stock Exchange during...
A Compound Decision Support System for Corporate Planning
Providing a plan for any corporate or firm at macro level, as an organization or enterprise resource planning has particular importance nowadays. To meet the enterprise resource planning needs applications software packa...