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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)
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
Date: 2003-06-04
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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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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2003:207

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