An Investigation of Default Prediction Models in the Taiwan Banking Sector

The Empirical Economics Letters, 1-14, Vol. 12 (3), 303 – 310, 2012

14 Pages Posted: 6 Jan 2013 Last revised: 11 Aug 2016

Tony Chieh-tse Hou

National Dong Hwa University

Chun-Neng Peng

National Dong Hwa University

William Wei-jen Lai

Taiwan Academy of Banking and Finance (TABF)

Date Written: June 1, 2012

Abstract

This study investigates the determinants of bank default probability and the predictive performance of the logit and the hazard models. Using accounting and market price information in the Taiwan bank sector for the period 1999 to 2010, the result shows both models provides adequate default predicative performances. Furthermore, it finds banks’ default probabilities are negatively and significantly related to distance to default and stock returns, but positively and significantly related to loan loss provision ratios.

Keywords: bank, distance-to-default, hazard model, logit model

JEL Classification: E50, G18, G20

Suggested Citation

Hou, Tony Chieh-tse and Peng, Chun-Neng and Lai, William Wei-jen, An Investigation of Default Prediction Models in the Taiwan Banking Sector (June 1, 2012). The Empirical Economics Letters, 1-14, Vol. 12 (3), 303 – 310, 2012. Available at SSRN: https://ssrn.com/abstract=2196960

Tony Chieh-tse Hou (Contact Author)

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng
Hualien, 97401
Taiwan

HOME PAGE: http://faculty.ndhu.edu.tw/~tonycthou/

Chun-Neng Peng

National Dong Hwa University ( email )

Taiwan

William Wei-jen Lai

Taiwan Academy of Banking and Finance (TABF) ( email )

No. 62, Sec. 3, Roosevelt Road
Taipai 100, Taiwan
China

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