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Default Risk Among Australian Listed Corporations

Author

Listed:
  • Michael Robson

    (Reserve Bank of Australia)

Abstract

Market-based information can help detect deteriorating corporate health because it incorporates more forward-looking information than other data sources such as financial statements. With this in mind, the Reserve Bank has developed an indicator of financial health based on a contingent claims framework developed by Merton (1974), which is sometimes called a distance-to-default model. The Bank will primarily use the model to assess trends in financial health for the corporate sector as a whole and, in aggregate, the model is able to broadly match the dynamics of the corporate failures data, suggesting that it will be a useful addition to the Bank’s existing suite of monitoring tools. The results from the model suggest that corporate financial conditions remain robust, despite some deterioration more recently, which partly reflects the headwinds faced by listed resource companies.

Suggested Citation

  • Michael Robson, 2015. "Default Risk Among Australian Listed Corporations," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 47-54, September.
    • Handle: RePEc:rba:rbabul:sep2015-06
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2015/sep/pdf/bu-0915-6.pdf
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    References listed on IDEAS

    as
    1. Martín Saldias, 2012. "Systemic Risk Analysis using Forward-Looking Distance-to-Default Series," Working Papers w201216, Banco de Portugal, Economics and Research Department.
    2. Marianne Gizycki & Brenton Goldsworthy, 1999. "Australian Banking Risk: The Stock Market’s Assessment and the Relationship Between Capital and Asset Volatility," RBA Research Discussion Papers rdp1999-09, Reserve Bank of Australia.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    4. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
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    Cited by:

    1. Rose Kenney & Gianni La Cava & David Rodgers, 2016. "Why Do Companies Fail?," RBA Research Discussion Papers rdp2016-09, Reserve Bank of Australia.
    2. Jonathan Hambur & Gianni La Cava, 2018. "Do Interest Rates Affect Business Investment? Evidence from Australian Company-level Data," RBA Research Discussion Papers rdp2018-05, Reserve Bank of Australia.

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