Estimation of the Default Risk of Publicly Traded Canadian Companies

Georges Dionne (), Sadok Laajimi, Sofiane Mejri and Madalina Petrescu

Cahiers de recherche from CIRPEE

Abstract: In this paper, we investigate the hybrid contingent claim approach with publicly traded Canadian companies listed on the Toronto Stock Exchange. Our goal is to assess how combining their continuous valuation by the market with the value given in their financial statements improves our ability to predict their probability of default. Our results indicate that the predicted structural probabilities of default (PDs from the structural model) contribute significantly to explaining default probabilities when PDs are included alongside the retained accounting variables. We also show that quarterly updates to the PDs add a large amount of dynamic information to explain the probabilities of default over the course of a year. This flexibility would not be possible with a reduced-form model. We also conducted a preliminary analysis of correlations between sructural probabilities of default for the firms in our database. Our results indicate that there are substantial correlations in the studied data.

Keywords: Default risk; public firm; structural model; reduced form model; hybrid model; probit model; Toronto Stock Exchange; correlations between default probabilities (search for similar items in EconPapers)
JEL-codes: G21 G24 G28 G33 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cfn, nep-fin, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Estimation of the Default Risk of Publicly Traded Canadian Companies (2006)
Working Paper: Estimation of the default risk of publicly traded Canadian companies (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0613

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