Default Risk Analysis of the Taiwan Industrial: A Survival Analysis Approach

• Activity Number: 79
• Type: Contributed
• Date/Time: Sunday, August 4, 2013 : 4:00 PM to 5:50 PM
• Sponsor: Section on Risk Analysis
• Author(s): Yi-kuan Jong*+
• Companies: St. John's University
• Keywords: Defalut probability ; Cox PH model

Abstract

In default risk analysis, the discriminate analysis for default and probit or logit models for default probability are common used. For these analysis, we only consider the effects of economic variables without time effects. In this study, we are using Cox proportional hazard rate (PH) model to model default probability. A total of 15 risk factors of earning, safety, activity and cash flows are considered. We found that ROA and ROE have negative effects on predicting default probability for earning factor. Current ratio and acid ration have negative effects on predicting default probability for safety factor. For cash flow factor, cash flow ratio and cash reinvestment ratio has negative effect on on predicting default probability. And for activity factor, only capital turnover ratio presents a negative effect for predicting default probability. Financial institute such as Banks can use this model for predict default probability and reduce the risk for holding default customers. The empirical analysis of TCRI data gives the evidence for model adequacy.