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Bank credit risk and structural credit models: Agency and information asymmetry perspectives

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  • Liao, Hsien-Hsing
  • Chen, Tsung-Kang
  • Lu, Chia-Wu

Abstract

This work investigates the effects of agency and information asymmetry issues embedded in structural form credit models on bank credit risk evaluation, using American bank data from 2001 to 2005. Findings show that both the agency problem and information asymmetry significantly cause deviations in the credit risk evaluation of structural form models from agency ratings. Five independent factors explain a deviation of 42.6-78.3% and should be incorporated into future credit risk modeling. Additionally, both the effects of information asymmetry and debt-equity agency positively relate to the deviation while that of management-equity agency relates to it negatively.

Suggested Citation

  • Liao, Hsien-Hsing & Chen, Tsung-Kang & Lu, Chia-Wu, 2009. "Bank credit risk and structural credit models: Agency and information asymmetry perspectives," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1520-1530, August.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:8:p:1520-1530
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