The financial health of a company and the risk of its default: Back to the future

Gianmarco Bet, Francesco Dainelli and Eugenio Fabrizi

Papers from arXiv.org

Abstract: We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that equilibrium may decay. The estimate of that probability is based on the credibility and uncertainty of the company's financial forecasts. Accordingly, we develop an equilibrium model establishing ranges of interest rates as a function of predictable corporate performance and of its credit supply conditions. As a result, our model estimates idiosyncratic default risk and provides intrinsically forward-looking PD.

Date: 2023-02
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Journal Article: The financial health of a company and the risk of its default: Back to the future (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2302.10140

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