Credit Risk Factors During The Asian And Global Financial Crises

This study measures the effects of specific credit risk factors of companies that defaulted during the Asian currency and global credit crises. Using Taiwanese listed companies’ data, the predictability of specific credit risk factors were discrepancies during these 2 crises. First, I captured variables from Altman’s (1968) Z-score model, a pioneer and notable model based on Accounting Data, from the Merton distance to default (DD) model, and from the naïve probability model-an alternative of the Merton DD model. The significance of the Z-score model variables are examined by applying the logit model. Furthermore, the forecasting ability of the logit model, Merton DD model, naïve probability, and the Taiwan corporate credit rating index are compared. The findings of this study indicate that the financial ratio of sales to total assets was the most crucial factor during the Asian financial crisis. Moreover, the ratio of retained earnings to total assets and the Merton DD were critical factors during the Global financial crisis. The predictability of the traditional logit model using the Z-score model variables performed well