Advances in Economics, Management and Political Sciences

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Proceedings of the 7th International Conference on Economic Management and Green Development

Series Vol. 38 , 10 November 2023


Open Access | Article

Analyzing the Models of Financial Distress in Credit Risk

Qinkai Xu * 1 , Xi ai Zhang 2
1 Mosman High school
2 Queens Elite Academy

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 38, 1-5
Published 10 November 2023. © 10 November 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation Qinkai Xu, Xi ai Zhang. Analyzing the Models of Financial Distress in Credit Risk. AEMPS (2023) Vol. 38: 1-5. DOI: 10.54254/2754-1169/38/20231875.

Abstract

This paper presents a study comparing the effectiveness of accounting-based and market-based models predicting financial distress. We examine various periods, including events from the 1970s to the 1990s, the impact of COVID-19, and the effect of APRA. Our findings demonstrate that an accounting-based distress model performs similarly to the market-based model of defaults. Furthermore, when we combine both sources of information, the resulting model outperforms either individual model. These results suggest that accounting and market-based information are mutually reinforcing when assessing distress levels in pricing.

Keywords

accounting-based models, market-based models, credit risk, forecasting bankruptcy

References

1. DEMIRBAS OZBEKLER, MERVE (2023) Essays on Credit Risk, Information Environment and Uncertainty. Doctoral thesis, University of Essex.

2. Kim, Young-Ah and Moffatt, Peter G and Peters, Simon (2022) Generalized additive modeling of the credit risk of Korean personal bank loans. Journal of Credit Risk, 18 (3). pp. 77-103. DOI https://doi.org/10.21314/jcr.2022.004

3. Liñares-Zegarra, José and Wilson, John OS (2014) Credit card interest rates and risk: new evidence from US survey data. The European Journal of Finance, 20 (10). pp. 892-914. DOI https://doi.org/10.1080/1351847x.2013.839461

4. He, K. (2012). Expected Default Measures in the KMV model and the Market-based model.

5. Wang, Y., Lin, L., Kuo, H. C., & Piesse, J. (2010). Detecting corporate failure. Handbook of quantitative finance and risk management, 1593-1606.

6. Hudson, C., Kurian, S., & Lewis, M. (2023). Non-bank Lending in Australia and the Implications for Financial Stability. 1. 1 Renters, Rent Inflation and Renter Stress 2. Fixed-rate Housing Loans: Monetary Policy Transmission and Financial 10 Stability Risks 3. 19 A New Measure of Average Household Size 4. 27 Non-bank Lending in Australia and the Implications for Financial Stability, 27.

7. Casu, Barbara and Clare, Andrew and Sarkisyan, Anna and Thomas, Stephen (2011) Does securitization reduce credit risk-taking? Empirical evidence from US bank holding companies. The European Journal of Finance, 17 (9-10). pp. 769-788. DOI https://doi.org/10.1080/1351847x.2010.538526

Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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Volume Title
Proceedings of the 7th International Conference on Economic Management and Green Development
ISBN (Print)
978-1-83558-097-4
ISBN (Online)
978-1-83558-098-1
Published Date
10 November 2023
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/38/20231875
Copyright
10 November 2023
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated