Credit Risk Measurement Of Listed Companies Based On KMV Model

In recent years,China's problem of overcapacity is serious,which deeply impact China's economic development.Enterprises' excess capacity make profits greatly reduced and even loss.China's government in recent years began to implement the structural reform of the supply front.The result of government to eliminate backward production capacity,on the one hand is balance market supply and demand and promote the development of enterprise with strong competitiveness,on the other hand some enterprises which difficult to continue will face the situation of shutting down.In this context,overcapacity enterprises have the possibility of default and the whole industry's credit risk will increased.Credit risk is one of the most important risks to governments,banks and enterprises,regardless of any period or domestic and foreign.China in the management and measurement of credit risk is clearly lagging behind the Western developed countries?It has been the target of Chinese scholars and enterprise to find a suitable credit risk quantification model for China's enterprise.In such context,this paper uses the KMV model to measure the credit risk problem of overcapacity industry represented by steel and coal listed enterprises in China's A-share market.This paper firstly discusses advantages and disadvantages of each credit risk model,and the reasons why the KMV model is suitable for Chinese enterprises.Secondly the paper discusses how the parameters of the KMV model are selected and corrects the default point(DP),so that the revised default point is more suitable for China's enterprises.Because the original default point of this model is set at 1 times the short-term debt plus 0.5 times the long-term debt,the Chinese scholars proved the such default point is not the most suitable one for China's situation.Secondly using the revised model,we calculated the default distance of 33 specially treated*ST listed companies and non-ST,non-*ST listed companies(the same industry,the same market,the same asset size)in China.The result will check the validity of the revised model.And then use the revised model to analyze the default risk of steel and coal enterprises listed in China's A-share market in 2009 and 2016.The empirical results show that the default distance of steel and coal listed companies with larger asset size is bigger than that with smaller asset size,which further validates the effectiveness of the model.And through default distance result of the steel,coal industry in 2009,compared with 2016,we can find,in 2009 credit risk of China steel,coal industry is very serious,after years of extent capacity cutting policy,the problem has been alleviated.Finally,this paper puts forward some suggestions on the application of KMV model in China and the overcapacity industry.