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Structural Model For Determining Enterprise Group'S Integrated Lines Of Credit

Author

Listed:
  • LIN CHEN

    (School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China)

  • ZONGFANG ZHOU

    (School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China)

  • YI PENG

    (School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China)

  • GANG KOU

    (School of Management and Economics, University of Electronic Science & Technology of China, Chengdu, Sichuan, 610054, China)

Abstract

A line of credit is one of the most flexible financing tools for companies. Banks give companies lines of credit to strengthen their profitability and competitive ability. On the other hand, companies draw the lines of credit that will increase banks' credit risk. It is very difficult for banks to determine the lines of credit for an enterprise group. Based on principle of credit risk evaluation and structural model, this paper first defines bank's tolerable default risk and lines of credit, and then analyzes integrated lines of credit of parent and subsidiary companies. The results of this research indicate that the lines of credit of single company is related to its asset value growth, and integrated lines of credit of an enterprise group is also related to member's asset value growth and the associated relationships. Furthermore, this study shows that the integrated lines of credit of an enterprise group can be determined by the weighted sum of member's lines of credit and the computational formula of weight. This study provides a quantitative analysis tool to ascertain the enterprise group's integrated lines of credit and analyze how the associated relationships affect the integrated lines of credit.

Suggested Citation

  • Lin Chen & Zongfang Zhou & Yi Peng & Gang Kou, 2011. "Structural Model For Determining Enterprise Group'S Integrated Lines Of Credit," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 269-285.
    • Handle: RePEc:wsi:ijitdm:v:10:y:2011:i:02:n:s0219622011004324
    DOI: 10.1142/S0219622011004324
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    References listed on IDEAS

    as
    1. Bag, Pinaki, 2010. "Exposure at Default Model for Contingent Credit Line," MPRA Paper 20387, University Library of Munich, Germany.
    2. Kanatas, George, 1987. "Commercial paper, bank reserve requirements, and the informational role of loan commitments," Journal of Banking & Finance, Elsevier, vol. 11(3), pages 425-448, September.
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