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Lagged accuracy in credit-risk measures

Author

Listed:
  • Abinzano, Isabel
  • Gonzalez-Urteaga, Ana
  • Muga, Luis
  • Sanchez, Santiago

Abstract

This paper analyzes the magnitude (accuracy) and length (time) of the lag in the incorporation of new information in different measures of credit risk. The results, for US firms, show a lag for Altman's Z accounting measure and credit rating. In contrast, market-based credit-risk measures such as CDSs and the Black-Scholes-Merton model show no lag. This paper also analyzes the determinants of the lags found showing the importance of the informativeness of CDSs in reducing the lag for all types of default events, and a negative relationship between accounting manipulation and the lag of Altman's Z for severe default events.

Suggested Citation

  • Abinzano, Isabel & Gonzalez-Urteaga, Ana & Muga, Luis & Sanchez, Santiago, 2022. "Lagged accuracy in credit-risk measures," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005845
    DOI: 10.1016/j.frl.2021.102653
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    References listed on IDEAS

    as
    1. Abinzano, Isabel & Gonzalez-Urteaga, Ana & Muga, Luis & Sanchez, Santiago, 2020. "Performance of default-risk measures: the sample matters," Journal of Banking & Finance, Elsevier, vol. 120(C).
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    More about this item

    Keywords

    Credit-risk measures; Accuracy; Lag; Hard-to-value stocks; Accruals; CDS informativeness;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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