Does default point vary with firm size?

Yaojie Zhang and Benshan Shi

Applied Economics Letters, 2018, vol. 25, issue 15, 1078-1082

Abstract: This article aims to improve the predictive ability of KMV model by distinguishing firm size. The evidence suggests that default point would vary with firm size. Using the method of particle swarm optimization, we obtain the optimal default point separately for large firms and small firms. Several statistical tests such as the model confidence set methodology show that our relatively tractable model is more likely to have the strongest predictive ability.

Date: 2018
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DOI: 10.1080/13504851.2017.1397843

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