It is shown that bond valuation without due consideration to debt-servicing arrangements can lead to a misspecification of default risks and hence in the credit rating attached to the bond. The general conclusion is that default probabilities depend not only upon a firm's leverage and the...

Two problems are identified in the treatment of loan-loss provisions under the Basle Accord as modified in 1991. It is suggested that a distinction should be made between expected and unexpected loan losses and that the former should be treated in the same way that identified losses are. That...

This paper explores alternative methods for computing earnings per share (EPS) for a company whose capital structure consists of ordinary shares and warrants. The methods for computing EPS identified by the FASB (1996) are critically evaluated and an alternative measure, the holding period...

A model is presented of bank behaviour which identifies the factors determining a bank's optimal capital/asset ratio, its optimal liquidity ratio, the expected value of non-performing loans and the probability of bank failure. We propose that this last variable can act as an index of bank...

It is shown that bond valuation without due consideration to debt-servicing arrangements can lead to a misspecification of default risks and hence in the credit rating attached to the bond. The general conclusion is that default probabilities depend not only upon a firm's leverage and the...