Research On Default Correlation And Credit Risk Of Enterprise Group's Members

An enterprise group is a multi-corporate union which is constituted by parent andsubsidiary companies,holding company and so on.It is an advanced stage of corporationdevelopment.The development of enterprise group has a considerable effect in both themarket economy of western developed countries and China's economic development.Enterprise group has always been an important customer of commercial banks,because it can bring enormous scale benefits to banks.Banks prefer to provide loans toenterprises group due to the lower operating cost.However, there are a large number ofmember enterprises in an enterprise group,and the shareholding is one of the mainconnection links among the member enterprises.On the one hand,those features createmore asymmetric information between banks and enterprise groups.On the other hand,they may create highly correlated risks among member enterprises. Once a member'scredit risk breaks out,it spreads to other members.Default of any member in theenterprise group may cause default of other related enterprises.It exposes banks to thehuge cumulative credit risks.This point has been proved by the abroad or domesticenterprise groups which have financial problems.For this reason,the huge profits oftengo along with the enormous losses.Hence,banks must have a full understanding onenterprise group's credit risk.The key of keeping bank from enterprise group's creditrisk is the evaluation of the core member's credit risk and the default correlation ofmember enterprises.Based on the analysis of the organization and operating characteristics of enterprisegroup, and the causes of enterprise group's credit risk, this dissertation study themeasure of default correlation and credit risk between members of enterprise group inthis paper.Firstly, regarding to the direct or indirect shareholding relationship between themajority of the member enterprises, such as the parent and subsidiary companyrelationship. In terms of structure model, this dissertation analyze the asset correlationand the default correlations of parent and subsidiary company from the view of the shareholding of parent & subsidiary company. Further, based on the theory ofcompound option and basket option, this dissertation study how to evaluate the parentcompany's credit risk, and get a conclusion that the parent company's defaultprobability is a function with independent variable of the subsidiary company's defaultprobability.it can use this function to analyze the default contagion between themembers of enterprise group.Secondly, because there are not direct shareholding relationship between somemember companies in an enterprises group, but these companies are all controlled bythe parent company. Based on the intensity model, this dissertation put the variable ofenterprise group's asset value as a public factor of the default intensity of thesubsidiaries, and discuss the default correlation between these subsidiary companies.Also, this dissertation propose a method that using credit rating information to estimatestatic default intensity.Thirdly, this dissertation use Fault Tree Analysis (FTA) to evaluate the credit riskof parent and subsidiary company, and discuss the process of default contagion. In FTA,this dissertation uses fuzzy logic to construct multi-hierarchy fault tree analysis. Itshows that the FTA method is consistent with the theory of compound option and basketoption to measure the parent company's credit risk under certain conditions.Finally, according to the problem of corporate governance and non-fair relatedparty transactions, this dissertation analyze the motive of transferring the loan in anenterprise group and the process of credit risk contagion from the perspective of thestatus of contract, the agent's risk attitude and moral hazard. Based on the utilitymaximization theory, this dissertation study how the credit risk has been affected bythese factors and show that the agent's risk attitude and status of contract will exert aninfluence on the default probability of the subsidiary company in the enterprise group.