Combining structural models and accounting‐based models for measuring credit risk in real estate companies

J. Samuel Baixauli, Susana Alvarez and Antonina Módica

International Journal of Managerial Finance, 2012, vol. 8, issue 1, 73-95

Abstract: Purpose - The purpose of this paper is to, first, analyse to what extent the default probability based on structural models provides additional information and that accounting ratios do not contemplate. Second, to design hybrid models by including the default probability from structural models as explanatory variable, in addition to accounting ratios, in order to evaluate the differences in the accuracy of default predictions using an accounting‐based model and a hybrid model. Design/methodology/approach - The authors calculated the scores from the accounting models annually during the period from 2003 to 2007 and estimated several structural models. Findings - The results show that the market information obtained from the structural models includes additional information not reflected in the accounting information. Also, it can be concluded that including default probability from structural models as an explanatory variable allows the out‐sample predictive capacity of accounting‐based models to be improved. Practical implications - The study highlights the importance of combining a structural model with an accounting model rather than expending energy on determining which of the two provides a greater predictive capacity. In fact, recent literature demonstrates no superiority of one approach over the other because both approaches capture different aspects related to the risk of bankruptcy in companies and they should be combined to improve credit risk management. Originality/value - This study expands on the existing literature on the probability of business failure in the real estate sector. The authors present a comparative analysis of the accuracy of default predictions using accounting‐based models and hybrid models which will consider the default probability implicit in market information.

Keywords: Business failures; Credit management; Risk management; Real estate companies; Structural models; Default probability; Credit risk; Accounting‐based model (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:ijmfpp:v:8:y:2012:i:1:p:73-95

DOI: 10.1108/17439131211201040

Access Statistics for this article

International Journal of Managerial Finance is currently edited by Dr Alfred Yawson

More articles in International Journal of Managerial Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().