We demonstrate improvements in predictive power when introducing spline functions to take account of highly non-linear relationships between firm failure and earnings, leverage, and liquidity in a logistic bankruptcy model. Our results show that modeling excessive non-linearities yields...

We demonstrate improvements in predictive power when introducing spline functions to take account of highly non-linear relationships between firm failure and earnings, leverage, and liquidity in a logistic bankruptcy model. Our results show that modeling excessive non-linearities yields...

This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong...

Short-term financing, e.g., asset-backed commercial paper (ABCP) or repurchase agreements (repo), was prevalent prior to the 2007-2008 financial crises. Banks funded by short-term debts, however, are exposed to rollover risk as the banks are unable to raise sufficient funds to finance their...

Poor corporate governance can damage the interests of shareholders, and may lead to company collapse. Previous studies in credit risk prediction provide no consensus as to which and how corporate governance variables determine bankruptcy. This paper is the first to apply a discrete time hazard...

The Basel II/III and CRD-IV Accords reduce capital charges on bank loans to smaller firms by assuming that the default probabilities of smaller firms are less sensitive to macroeconomic cycles. We test this assumption in a default intensity framework using a large sample of bank loans to private...

On 3 December EY hosted a SUERF conference on banking reform with Sir Howard Davies, the Chairman of RBS, and Dame Colette Bowe, the Chairman of the Banking Standards Board, as the two keynote speakers. Professor David Miles (Imperial College) gave the SUERF 2015 Annual Lecture on Capital and...

This paper examines the negative externalities that may occur when a large bank fails, describes the nature of those externalities, and explores whether they may be greater in a case involving a large cross-border banking organization. The analysis suggests that the chief negative externalities...

There are two purposes of this article. Firstly, it examines the consequences for stakeholders, if the mortgage originator or subsequent assignee of its rights, e.g. the trustee issuer, become insolvent and considers the main legal and financial risk issues that can arise in an RMBS program in...

Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between Merton-type and Black-Cox-type structural default models. Our...