STRUCTURAL MODEL FOR DETERMINING ENTERPRISE GROUP'S INTEGRATED LINES OF CREDIT

Lin Chen (), Zongfang Zhou (), Yi Peng () and Gang Kou ()
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Lin Chen: School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China
Zongfang Zhou: School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China
Yi Peng: School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China
Gang Kou: School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China

International Journal of Information Technology & Decision Making (IJITDM), 2011, vol. 10, issue 02, 269-285

Abstract: A line of credit is one of the most flexible financing tools for companies. Banks give companies lines of credit to strengthen their profitability and competitive ability. On the other hand, companies draw the lines of credit that will increase banks' credit risk. It is very difficult for banks to determine the lines of credit for an enterprise group. Based on principle of credit risk evaluation and structural model, this paper first defines bank's tolerable default risk and lines of credit, and then analyzes integrated lines of credit of parent and subsidiary companies. The results of this research indicate that the lines of credit of single company is related to its asset value growth, and integrated lines of credit of an enterprise group is also related to member's asset value growth and the associated relationships. Furthermore, this study shows that the integrated lines of credit of an enterprise group can be determined by the weighted sum of member's lines of credit and the computational formula of weight. This study provides a quantitative analysis tool to ascertain the enterprise group's integrated lines of credit and analyze how the associated relationships affect the integrated lines of credit.

Keywords: Integrated lines of credit; default probability; enterprise group; ratio of shareholding; 37A50; 60Fxx; 60G10 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1142/S0219622011004324

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