Default probabilities of privately held firms

Jin-Chuan Duan, Baeho Kim, Woojin Kim () and Donghwa Shin

Journal of Banking & Finance, 2018, vol. 94, issue C, 235-250

Abstract: We estimate the term structures of the default probabilities for private firms using data consisting of 1759 default events from 29,894 firms between 1999 and 2014. Each firm’s default likelihood is characterized by a forward intensity model employing macro risk factors and firm-specific attributes. As private firms do not have traded stock prices, we devise a methodology to obtain a public-firm equivalent distance-to-default by projection that references the distance-to-defaults of public firms with comparable attributes. The fitted model provides accurate multi-period forecasts of defaults, leading to both economically and statistically significant benefits over benchmark models. The reported interest rates charged to private firms are reflective of the estimated default term structure.

Keywords: Default probability; Term structure; Privately held firm; Interest charge (search for similar items in EconPapers)
JEL-codes: E43 E47 G33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426618301730
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:94:y:2018:i:c:p:235-250

DOI: 10.1016/j.jbankfin.2018.08.006

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().