IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Empirical Study Of The Probability Of Default In Case Of Romanian Companies Listed On Stock Exchange

Listed author(s):
  • Petru Tunde Petra


    (Babes-Bolyai University, Faculty of Economics and Business Administration)

  • Farkas Dalma - Zsuzsa

    (Babes-Bolyai University, Faculty of Economics and Business Administration)

  • Furdek Balazs - Marton

    (Babes-Bolyai University, Faculty of Economics and Business Administration)

  • Marton Noemi, Racz Timea Erzsebet

    (Babes-Bolyai University, Faculty of Economics and Business Administration)

Registered author(s):

    The importance of estimation of a firm's probability of default increased significantly during the economic and financial crisis for financial institutions, which can be explained by the fact that the share of nonperforming loans increased in this period. The probability of default can be estimated with structural models, which have on base the methodology developed by Merton (1974), methodology used by Moody's Corporation (known as KMV Merton model). The aim of this study is to estimate the probability of default of companies listed on Bucharest Stock Exchange using this methodology. This approach was widely used in the literature by many researchers (i.e., Kealhofer and Kurbat (2000), Crosbie and Bohn (2002), Duffie and Wang (2004), Bharath and Shumway (2004, 2008)). In Romania this methodology was empirically tested by Codirlaşu (2007), who estimated using Merton's methodology the probability of default of companies listed on the Bucharest Stock Exchange, respectively by Bobircă et al. (2008), where the probabilities of default were estimated in case of 42 companies listed on the Bucharest Stock Exchange for 2000-2008 time period. In this paper we used Merton's model, which assumes that a company defaults if the value of its assets is less than the promised dept repayment at time T. The process of estimating the probability of default starts from the following firm specific variables: the market value of the firm's assets, the share prices, the value of the liabilities and the risk-free rate. The analyzed period is 2003-2010, containing the economic and financial crisis period, too. Analyzing the financial statements of the companies listed on the Bucharest Stock Exchange, we determined the input parameters of the model and calculated the quarterly probabilities of default of each analyzed company. According to our results the probabilities of default have a reduced value in the majority of the cases.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by University of Oradea, Faculty of Economics in its journal The Journal of the Faculty of Economics - Economic.

    Volume (Year): 1 (2011)
    Issue (Month): 1 (July)
    Pages: 515-523

    in new window

    Handle: RePEc:ora:journl:v:1:y:2011:i:1:p:515-523
    Contact details of provider: Postal:
    Universitatii str. 1, Office F209, 410087 Oradea, Bihor

    Phone: +40259408799
    Fax: 004 0259 408409
    Web page:

    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.:

    in new window

    1. repec:wsi:ijtafx:v:08:y:2005:i:06:n:s0219024905003256 is not listed on IDEAS
    2. M. Tudela & G. Young, 2005. "A Merton-Model Approach To Assessing The Default Risk Of Uk Public Companies," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(06), pages 737-761.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ora:journl:v:1:y:2011:i:1:p:515-523. 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: (Catalin ZMOLE)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.