A Testable Ebit-Based Credit Risk Model

42 Pages Posted: 28 May 2004

See all articles by Manuel Ammann

Manuel Ammann

University of St. Gallen - School of Finance

Michael Genser

University of St. Gallen - Swiss Institute of Banking and Finance

Date Written: January 13, 2004

Abstract

We extend the EBIT-based dynamic capital structure model proposed by Goldstein, Ju and Leland (2001) to finite-maturity debt and multiple bond issues. The complete tax structure of Goldstein, Ju and Leland (2001) is maintained. In our setting, the usually available market data can be used for empirical testing. Accounting data is not necessary to test the model. Using a numerical implementation of our model, we also analyze optimal bankruptcy policies and the impact of different tax regimes on security values.

Keywords: firm and security valuation, business and investor taxation, optimal bankruptcy, credit risk, capital structure

JEL Classification: G12, G13, G32, G33

Suggested Citation

Ammann, Manuel and Genser, Michael, A Testable Ebit-Based Credit Risk Model (January 13, 2004). EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=498803 or http://dx.doi.org/10.2139/ssrn.498803

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Michael Genser (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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