Agency Issues in Structural Credit Models - Evidences from Bank Industry
55 Pages Posted: 4 Feb 2008
Date Written: November 19, 2007
We empirically examine the agency issues in structural credit models using bank data from 2001 to 2005. We find five independent agency related factors explaining the estimating errors of various structural models from 27% to 70%. They include factors of profit efficiency, cost efficiency, value, debt-equity, and one mitigating debt-equity agency problem. They are scarcely discussed in literature and should be incorporated into credit modeling. Different from previous empirical literature, we also find that, except the Collin-Dufresne and Goldstein (2001), the other three models underestimate default probabilities on average and the one with dynamic interest rate setting, the Longstaff and Schwartz (1995), performs the best.
Keywords: Credit Risk, Structural Form Models, Commercial Banks, Agency factors
JEL Classification: G21, G33
Suggested Citation: Suggested Citation