Performance of default-risk measures: the sample matters

By I. Abínzano, Ana González-Urteaga, L. Muga, S. Sánchez. Journal of Banking & Finance, 2020

46 citations recorded by the source corpus.

This paper examines the predictive power of the main default-risk measures used by both academics and practitioners, including accounting measures, market-price-based measures and the credit rating. Given that some measures are unavailable for some firm types, pair wise comparisons are made between the various measures, using same-size samples in every case. The results show the superiority of market-based measures, although their accuracy depends on the prediction horizon and the type of default events considered. Furthermore, examination shows that the effect of within-sample firm characteristics varies across measures. The overall finding is of poorer goodness of fit for accurate default prediction in samples characterised by high book-to-market ratios and/or high asset intangibility, both of which suggest pricing difficulty. In the case of large-firm samples, goodness of fit is in general negatively related to size, possibly because of the “too-big-to-fail” effect.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/d7943e4f0d1b5cb1d875190e7bc4274de62cfff5