Effects of debt collection practices on loss given default

Chulwoo Han and Youngmin Jang

Journal of Banking & Finance, 2013, vol. 37, issue 1, 21-31

Abstract: In this article, we propose an LGD model that is solely based on legal and internal debt collection actions. Our model is supported by empirical tests in which it performs better than a usual firm specific model. This result is noteworthy when we recall that the model has only binary variables that indicate whether an action was taken. Our model can be applied to update the LGD of distressed firms in a timely manner reflecting the actions taken during the debt collection period. It also can be used to assess the effect of a recovery action and to determine whether to apply an action to certain types of debt.

Keywords: Loss given default; Recovery rate; Debt collection action; Foreclosure; Provisional seizure; Injunction (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:1:p:21-31

DOI: 10.1016/j.jbankfin.2012.08.009

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