A Study On The Default Probability Of Listed Companies In China Based On Modified KMV Model

The development of modern economy promoted the creation of credit.Credit brings convenience to people,but at the same time along with the increasing of credit risk.So strengthening the management of credit risk becomes more and more urgent.The listed company as a leader of the modern enterprise under the market economy system,it's credit quality will directly affect the development of China's securities market and the interests of investors.Only listed companies comply with credit,it can ensure the effective operation of the securities market.Therefore,it is necessary to strengthen the management of credit risk of listed companies,and use more accurate credit risk measurement method to measure the credit risk of listed compalies.The KMV model is based on the company's financial data and stock trading information to analyze the company's credit situation,so it is most suitable to measure the credit risk of listed companies.However,the KMV model is based on the foreign market environment.Using KMV model to test the credit risk of Listed Companies in China need to modify the model and test the effectiveness of the model.The default point and equity volatility are two important parameters for the KMV model,affecting the value of the default distance and expected default probability.Therefore,it is very meaningful to improve tlhe accuracy of the KMV model by choosing the default point which is suitable for the actual situation of our country and the sensitive volatility model.So,according to the actual situation of China's listed companies,we modified the default point and the equity volatility.Using the modified KMV model to count tlhe default distance and expected default probability of Listed Companies in China and use all kinds of methods to test the validity of the modified model.On the one hand,the default point of the parameters to be amended to reset the default point(DP)=a*short-term liabilities+b*long-term liabilities.By argument the company's assets value when it's ST as an independent variable,short-term liabilities and long-term liabilities as dependent variables,to establish the regression equation.The calculation formula of the modified default point is DP=1.1090*short-term liabilities+1.2838*long-term liabilities.On the other hand,the EGARCH model is used to calculate the volatility of the equity value,and compared with the results obtained by the historical volatility and GARCH(1,1)model to test whether the EGARCH model can improve the effectiveness of the model.Due to the lack of default database,we can not directly collect the data of default listed companies,and*ST shares are three consecutive years of losses and have a delisting risk,their credit risk is higher than non*ST companies.Therefore,this paper selects 20*ST companies as the default group and 20 non*ST companies as a normal group for comparative analysis to verify the validity of the modified model.The results of the empirical test show that the modified KMV model can effectively distinguish the ST and non-ST company's credit risk size,ST company's default distance is less than non-ST company's,the expected default probability is larger than non-ST company's expected default probability.Moreover,the modified KMV model improved the sensitivity and accuracy of the model.In adopting the EGARCH model,the KMV model has the strongest ability to identify the credit risk.