Credit risk, valuation and fundamental analysis

Marco Realdon

International Review of Financial Analysis, 2013, vol. 27, issue C, 77-90

Abstract: This study explores how a firm's credit risk affects accounting based valuation of the firm, of its equity and of its debt. The valuation model integrates fundamental equity and credit analysis and, under appropriate conditions, abides by the value conservation principle even in the presence of credit risk. The term structures of credit spreads on corporate bonds and credit default swaps are linked to equity valuation and to pro-forma financial statements. Calibration of the valuation model to equity and credit market prices is feasible. The model explains how credit risk depresses price to earnings and price to book ratios.

Keywords: Accounting based valuation; Credit spreads; Corporate bond valuation; Equity valuation; Default probability (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:27:y:2013:i:c:p:77-90

DOI: 10.1016/j.irfa.2012.10.001

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