A flow-based corporate credit model

A flow-based corporate credit model The main purpose of this paper is to develop a flow-based corporate credit model. This model can concurrently and endogenously generate a firm’s multi-period probabilities of liquidity crunch and expected liquidity shortfalls. This study builds a state-dependent internal liquidity model that incorporates both systematic and idiosyncratic shocks into corporate internal liquidity dynamics. The flow-based credit model differs from structural form credit models in that it considers a flow-based insolvency rather than a stock-based one, and has a potential to capture short-term credit information. Additionally, it differs from both reduced form and traditional accounting-based bankruptcy prediction models in that it is able to provide multi-period expected liquidity shortfalls endogenously. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

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Springer US
Copyright © 2010 by Springer Science+Business Media, LLC
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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