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Combining structural models and accounting-based models for measuring credit risk in real estate companies

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Purpose – The purpose of this paper is to, first, analyse to what extent the default probability based
on structural models provides additional information and that accounting ratios do not contemplate.
Second, to design hybrid models by including the default probability from structural models as
explanatory variable, in addition to accounting ratios, in order to evaluate the differences in the
accuracy of default predictions using an accounting-based model and a hybrid model.
Design/methodology/approach – The authors calculated the scores from the accounting models
annually during the period from 2003 to 2007 and estimated several structural models.
Findings – The results show that the market information obtained from the structural models
includes additional information not reflected in the accounting information. Also, it can be concluded
that including default probability from structural models as an explanatory variable allows the
out-sample predictive capacity of accounting-based models to be improved.
Practical implications – The study highlights the importance of combining a structural model
with an accounting model rather than expending energy on determining which of the two provides
a greater predictive capacity. In fact, recent literature demonstrates no superiority of one approach
over the other because both approaches capture different aspects related to the risk of bankruptcy in
companies and they should be combined to improve credit risk management.
Originality/value – This study expands on the existing literature on the probability of business
failure in the real estate sector. The authors present a comparative analysis of the accuracy of default
predictions using accounting-based models and hybrid models which will consider the default
probability implicit in market information.

Keywords Business failures, Credit management, Risk management, Real estate companies,Structural models, Default probability, Credit risk, Accounting-based mode

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Ketersediaan

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Informasi Detail

Judul Seri

International Journal of Managerial Finance

No. Panggil

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Penerbit

: Emerald Group., 2012

Deskripsi Fisik

International Journal of Managerial Finance Vol. 8 No. 1, 2012 pp. 73-95

Bahasa

English

ISBN/ISSN

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Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

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Subjek

AKUNTANSI

Info Detail Spesifik

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Pernyataan Tanggungjawab

Asmawati/Syahrial

Versi lain/terkait

Lampiran Berkas

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