Credit Risk Assessment of Corporate Sector in Croatia
The main goal of this paper is modeling credit risk of non-financial businesses entities by assessing the rating migration probabilities and predicting the probability of default over one year horizon on the basis of corporate financial accounts. Our research provides a number of new important insights. Ratings migration matrices are symmetrical in every observed period, which implies that default state is not final terminal state. We find a high degree of rating stability, with the exception of some volatility generated by firms in the middle of the ratings scale. In the period of lower economic growth probabilities of transition between different risks categories are lower than in the period of higher economic growth. Probabilities of default are relatively stable across enterprises operating in different economic activities. After considering a wide range of potential predictors of default, multivariate logistic regression results reveal that the most important are the ratio of shareholders’ equity to total assets and the ratio of EBIT to total liabilities, both negatively related to the probability of default. In addition, higher liquidity, profitability and sales as well as construction and real estate sector affiliation all decrease the companies’ probability of default in the following year. The model correctly classifies relatively reasonable percentage of companies in the sample (74% of all the companies, 71% of defaulted and 75% of non-defaulted companies) when the threshold is set in such a way to maximize the sum of correctly predicted proportions for both defaulted and nondefaulted companies.
Volume (Year): 33 (2009)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: Smiciklasova 21, 10000 Zagreb|
Web page: http://www.fintp.hr/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000.
"Stability of rating transitions,"
Journal of Banking & Finance,
Elsevier, vol. 24(1-2), pages 203-227, January.
- Jacobson, Tor & Kindell, Rikard & Lindé, Jesper & Roszbach, Kasper, 2008.
"Firm Default and Aggregate Fluctuations,"
Working Paper Series
226, Sveriges Riksbank (Central Bank of Sweden).
- Tor Jacobson & Rikard Kindell & Jesper Linde & Kasper Roszbach, 2008. "Firm default and aggregate fluctuations," Working Papers 08-21, Federal Reserve Bank of Philadelphia.
- Jacobson, Tor & Kindell, Rikard & Lindé, Jesper & Roszbach, Kasper F., 2008. "Firm Default and Aggregate Fluctuations," CEPR Discussion Papers 7083, C.E.P.R. Discussion Papers.
- Tor Jacobson & Jesper Lindé & Kasper Roszbach, 2011. "Firm default and aggregate fluctuations," International Finance Discussion Papers 1029, Board of Governors of the Federal Reserve System (U.S.).
- Andreas Charitou & Evi Neophytou & Chris Charalambous, 2004. "Predicting corporate failure: empirical evidence for the UK," European Accounting Review, Taylor & Francis Journals, vol. 13(3), pages 465-497.
When requesting a correction, please mention this item's handle: RePEc:ipf:finteo:v:33:y:2009:i:4:p:373-399. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martina Fabris)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.