Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies / Kimie Harada, Takatoshi Ito, Shuhei Takahashi.

Format:

Book

Author/Creator:

Harada, Kimie.

Contributor:

National Bureau of Economic Research.

Ito, Takatoshi.

Takahashi, Shuhei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16182.

NBER working paper series no. w16182

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper examines the movements of the Distance to Default (DD), a market-based measure of corporate default risk, of eight failed Japanese banks in order to evaluate the predictive power of the DD measure for bank failures. The DD became smaller in anticipation of failure in many cases. The DD spread, defined as the DD of a failed bank minus the DD of sound banks, was also a useful indicator for deterioration of a failed bank's health. For some banks, neither the DD nor the DD spread predicted the failures. However, those results were partly due to lack of transparency in financial statements and disclosed information.

Notes:

Print version record

July 2010.