• The Korean Journal of Financial Management
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• v.23 no.2
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• pp.209-237
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• 2006

Since previous default forecasting models for the firms evaluate the probability of default based upon the accounting data from book values, they cannot reflect the changes in markets sensitively and they seem to lack theoretical background. The market-information based models, however, not only make use of market data for the default prediction, but also have strong theoretical background like Black-Scholes (1973) option theory. So, many firms recently use such market based model as KMV to forecast their default probabilities and to manage their credit risks. Korean firms also widely use the KMV model in which default point is defined by liquid debt plus 50% of fixed debt. Since the debt structures between Korean and American firms are significantly different, Korean firms should carefully use KMV model. In this study, we empirically investigate the importance of debt structure. In particular, we find the following facts: First, in Korea, fixed debts are more important than liquid debts in accurate prediction of default. Second, the percentage of fixed debt must be less than 20% when default point is calculated for Korean firms, which is different from the KMV. These facts give Korean firms some valuable implication about default forecasting and management of credit risk.

• Korean Journal of Construction Engineering and Management
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• v.17 no.5
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• pp.13-21
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• 2016

Insolvency of construction companies that play the role of main contractors can lead to clients' losses due to non-fulfillment of construction contracts, and it can have negative effects on the financial soundness of construction companies and suppliers. The construction industry has the cash flow financial characteristic of receiving a project and getting payment based on the progress of the construction. As such, insolvency during project progress can lead to financial losses, which is why the prediction of construction companies is so important. The prediction of insolvency of Korean construction companies are often made through the KMV model from the KMV (Kealhofer McQuown and Vasicek) Company developed in the U.S. during the early 90s, but this model is insufficient in predicting construction companies because it was developed based on credit risk assessment of general companies and banks. In addition, the predictive performance of KMV value's insolvency probability is continuously being questioned due to lack of number of analyzed companies and data. Therefore, in order to resolve such issues, the Bayesian Probabilistic Approach is to be combined with the existing insolvency predictive probability model. This is because if the Prior Probability of Bayesian statistics can be appropriately predicted, reliable Posterior Probability can be predicted through ensured conditionality on the evidence despite the lack of data. Thus, this study is to measure the Expected Default Frequency (EDF) by utilizing the Bayesian Probabilistic Approach with the existing insolvency predictive probability model and predict the accuracy by comparing the result with the EDF of the existing model.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.15 no.2
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• pp.1118-1125
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• 2014

The past IMF foreign exchange crisis and subprime financial crisis had a big influence on variability of macroeconomics, even if the origin of its occurrence might be different. This not only had a significant infrequence on the overall industries, but also produced many insolvent companies by being closely linked with a management environment of an individual construction company leading the construction industry. The purpose of this research is to investigate characteristics of management condition of construction company according to the size of construction company using KMV model developed on the basis of the Black & Scholes option pricing theory. This research has set 28 construction companies listed to KOSPI/KOSDAQ for applying the KMV model and measuring the level of the default risk of construction companies. The data was retrieved from TS2000 established by Korea Listed Companies Association (KLCA), Statistics Korea. The analysis period is between first quarter of 2004 and fourth quarter of 2010. This research examine characteristics of the level and fluctuation process of the management condition of construction company according to the size of construction company.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.2
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• pp.15-24
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• 2019

This study analyzes the effect of the capital structure of Korean manufacturing firms on default risk based on Moody's KMV option pricing model where the probability of default is obtained by measuring the distance to default as a covariant in logit model developed by Merton (1974). Based on the panel data of manufacturing firms, this study achieves its primary objective, using a fixed effect regression model and examines the effect of a firm's capital structure on default risk amongst publicly listed firms on Korea exchange during 2005-2016. Empirical results obtained suggest that the rise in short-term debt to assets leads to increase the risk of default whereas the increase in long-term debt to assets leads to decrease the default risk. The benefits of short-term debt financing over a short-term period fade out in the presence of information asymmetry. However, long-term debt financing overcomes the information asymmetry and enjoys the paybacks of tax advantage associated with long-term debt. Additionally, size, tangibility and interest coverage ratio are also the important determinants of default risk. Findings support the trade-off theory of capital structure and recommend the optimal use of long-term debt in a firm's capital structure.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.1 no.1
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• pp.91-100
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• 2000

In 1997 the recession of Korean economy brought about the bankruptcy of large corporations and the large size of non-Performing financial assets which led to IMF financial crisis. One of the major reasons for IMF financial crisis was poor loan management of domestic financial institutions . During the restructuring process of financial institutions since the IMF financial crisis, the importance of the loan management has been recognized. Especially. financial institutions' credit allocation had been concentrated on a few big conglomerates and their subsidies as well as some specific business areas. Hence, risk-diversifying portfolio effects were not reflected in any loan portfolios. The IMF financial crisis in 1997 has clearly showed that credit-risk management is essential not only for individuals' loan but also for portfolios consisting of various loans The main objective of this paper is to provide some suggestions on the direction for financial institutions in Korea to improve their loan portfolio management. Particularly, for the effective management of loan portfolios, this paper introduces quantitative credit-risk management schemes such as KMV models and CreditMetrics which are commonly used in financial institutions in advanced countries. Financial institutions in Korea should make their best efforts to establish a more scientific as well as quantitative loan portfolio management.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.4
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• pp.53-63
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• 2019

The paper examines the influence of profitability on distance to default (DD) in Vietnam securities market. The investigated sample consists of 211 companies listed on HOSE during 18 years from 2010 to 2017. We apply KMV model to calculate distance to default and use both macroeconomics factors and firm specific factors as independent variables. Using General Least Squared (GLS) method, we find evidence to confirm the positive relationship between profitability and distance to default. This result showed that, although profitability did not directly reflect the cash flow generated, a good profitable enterprise would be an important factor to help facilitate and generate cash flow and at the same time debt was guaranteed when it was due. Besides, the test results revealed that the financial structure and sales on assets have the inverse effect on the distance to default at the significance level of 5%. The results also revealed that a group of macro factors had an influence on the distance to default of businesses, including spread, GDP and trade balance (via exchange rates). Gross domestic income had certain impacts on the distance to default of businesses. This was also a basic indicator measuring the national economic cycle.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.17 no.8
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• pp.147-156
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• 2016

This study analyzed the impact of changes in the construction business on construction company insolvency according to their size using the vector error correction model. First, this study applied EDF (Expected Default Frequency), which was calculated by KMV (Kealhofer, McQuown and Vasicek) model, as a variable to indicate the insolvency of construction companies. This study set 30 construction companies listed to KOSPI/KOSDAQ for estimating the EDF by size and construction companies were divided into two groups according to their size. To examine the construction business cycles, the amount of construction orders according to the type-residential, non-residential, and civil work- was used as a variable. The serial data was retrieved from TS2000 established by the Korea Listed Companies Association (KLCA), Statistics Korea. The analysis period was between the second quarter of 2001 and fourth quarter of 2015. As a result of calculating the EDF of construction companies by size, as it is generally known, the large-sized construction companies showed lower levels of insolvency than relatively smaller-sized construction companies. On the other hand, impulse response analysis based on VECM confirmed that the level of insolvency of large-scaled companies is more sensitive to business fluctuations than relatively smaller-sized construction companies, particularly changes in the residential construction market. Hence it is a major factor affecting the changes in insolvency of large-sized construction companies.

• Korean Journal of Construction Engineering and Management
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• v.13 no.4
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• pp.60-68
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• 2012

The past IMF foreign exchange crisis and subprime financial crisis had a big influence on variability of macroeconomics, even if the origin of its occurrence might be different. This not only had a significant infrequence on the overall industries, but also produced many insolvent companies by being closely linked with a management environment of an individual construction company leading the construction industry. Actually, the level of default risk of construction companies before and after fluctuation of macroeconomics gets to experience a rapid changing process, and a difference in reaction against shock exists according to each company. Accordingly, the purpose of this paper is to confirm the fluctuation process of the default risk of construction companies under the fluctuation of macroeconomics such as the IMF financial crisis and the subprime mortgage crisis. As an analysis result, it is judged that the subprime financial crisis gave bigger shock to construction companies than the foreign exchange crisis, and it is expected that this would have a relation with the construction market before shock of macroeconomics. In addition, it was analyzed that when comparing insolvent companies with normal companies, the recovery speed of normal companies is faster. It is judged that this was affected by a difference of internal business capacity between insolvent companies and normal companies.

• Journal of Distribution Science
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• v.21 no.12
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• pp.35-45
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• 2023

Purpose: This study analyzes civil servants' trust in cash waqf institution and their relationship with commitment. We use Key Mediating Variables (KMV) Theory with variables such as board benevolence, board integrity, board ability, board opportunism, communication, and accountability to predict the trust and commitment of civil servants in providing cash waqf. Research design, data and methodology: We used a quantitative research approach and an online questionnaire distributed to civil servants in Gorontalo Province; 410 respondents were obtained. Structural Equation Modeling (SEM) was used, utilizing the SEM-PLS software to analyze the data. Result: This study found that the variables board benevolence, board ability, board integrity, board opportunism, communication, and accountability affected trust. As for the variable of accountability, the hypothesis was rejected Conclusion: The communication variable of cash waqf institutions has a strong influence in increasing the confidence of civil servants in providing cash endowments. However, trust in waqf institutions may diminish due to low accountability and poor governance of cash waqf institutions. The trust of civil servants in cash waqf institutions in the future will increase their commitment to waqf.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.15 no.5
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• pp.3260-3269
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• 2014

The construction industry has strong ties with other industries, and so construction company insolvency also has a strong influence on other industries. Prediction models addressing the insolvency of construction company have been well studied. Although factors contributing to insolvency must precede those of predictions of insolvency, studies on these contributing factors are limited. The purpose of this study is to analyze the influence of changes in the housing market on construction company insolvency by using the Vector Error Correction Model. Construction companies were divided into two groups, and the expected default frequency(EDF), which indicates insolvency of each company was measured through the KMV model. The results verified that 10 largest construction companies were in a better financial condition compared to relatively smaller construction companies. As a result of conducting impulse response analysis, the EDF of large companies was found to be more sensitive to housing market change than that of small- and medium-sized construction companies.