88 Pages Posted: 1 Nov 2000
This paper explains and documents many issues related to default prediction based on financial statements. The underlying methodology is completely revealed and addresses many important practicalities in empirical default estimation. Test statistics are also provided on various models using our proprietary, and unprecedently large database of US and Canadian firms. We outline the current context of these tools in the banking industry, and describe several popular modeling choices. A chapter on variable selection illustrates the dominance of various financial statements (e.g., liabilities/assets vs. liabilities/tangible assets). This approach represents how one of the best-known credit companies is approaching quantitative models at the outset of an international effort to provide credit benchmarks for middle market companies.
Keywords: Default, private firm, default model, default prediction
JEL Classification: G33, M41
Suggested Citation: Suggested Citation
Falkenstein, Eric G. and Boral, Andrew and Carty, Lea V., RiskCalc for Private Companies: Moody's Default Model. As published in Global Credit Research, May 2000. Available at SSRN: https://ssrn.com/abstract=236011 or http://dx.doi.org/10.2139/ssrn.236011