Title

Comparing market-based and accounting-based credit models: A survey of the theoretical literature

Document Type

Conference Proceeding

Publisher

Edith Cowan University

School

School of Business and Law

RAS ID

23291

Comments

Originally published as: Dinh, D., Powell, R., & Vo, D. (2016, December). Comparing market-based and accounting-based credit models: A survey of the theoretical literature. In ECU Business Doctoral and Emerging Scholars Colloquium 2016 (pp. 68 - 76). Original article available here

Abstract

The paper examines two common types of corporate financial distress models, including (i) accounting-based models; and (ii) market-based models. While the accounting-based models use the analysis of financial statements to differentiate between distressed and non-distressed firms, market models utilise a combination of balance sheet items and volatility in market asset values of a firm to measure Distance to Default (DD). Findings from empirical studies using these models across countries and periods of time have provided mixed results. As such, the choice of an appropriate default models needs to factor in the unique circumstances of each credit portfolio.

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