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A Merton Model Approach to Assessing the Default Risk of UK Public Companies

Merxe Tudela and Garry Young

No 207, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper shows how a Merton-model approach can be used to develop measures of the probability of failure of quoted UK companies. Probability estimates are constructed for a group of failed companies and their properties as leading indicators of failure assessed. Probability estimates of failure for a control group of surviving companies are also constructed. These are used in Probit-regressions to evaluate the information content of the Merton-based estimates relative to information available in company accounts. The paper shows that there is much useful information in the Merton-style estimates.

Keywords: Merton models; corporate failure; implied default probabilities (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
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Citations: View citations in EconPapers (36)

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http://repec.org/res2003/Tudela.pdf full text

Related works:
Journal Article: A MERTON-MODEL APPROACH TO ASSESSING THE DEFAULT RISK OF UK PUBLIC COMPANIES (2005) Downloads
Working Paper: A Merton-model approach to assessing the default risk of UK public companies (2003) Downloads
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