Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147821
Authors: 
Konno, Yukiko
Itoh, Yuki
Year of Publication: 
2016
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 4 [Year:] 2016 [Issue:] 1 [Pages:] 1-13
Abstract: 
The current standardized approach for assessing credit risk under Basel III depends on ratings assigned by credit rating agencies (CRAs). However, this approach presents three problems. First, the definitions of ratings used by CRAs to assess the likelihood of default and recovery rates are not uniform. Second, because CRAs assign ratings according to through-the-cycle ratings, their ratings are less accurate in predicting near-term defaults and react slowly to credit events. Third, CRAs have assigned ratings to few Japanese companies. To improve the standardized approach under Basel III, we propose a new method for the evaluation of credit risk without CRAs. We analyse the influence of companies' financial and non-financial attributes on default and how a default probability model is constructed using annual reports of companies listed on the Tokyo Stock Exchange spanning fiscal 2003-2009. Results indicate that our model predicts default as accurately as CRAs.
Subjects: 
Basel Accord
credit rating
credit risk
default prediction
standardized approach
JEL: 
G21
G24
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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