Working Paper: NBER ID: w16182
Authors: Kimie Harada; Takatoshi Ito; Shuhei Takahashi
Abstract: This paper examines the movements of the Distance to Default (DD), a market-based measure of corporate default risk, of eight failed Japanese banks in order to evaluate the predictive power of the DD measure for bank failures. The DD became smaller in anticipation of failure in many cases. The DD spread, defined as the DD of a failed bank minus the DD of sound banks, was also a useful indicator for deterioration of a failed bank's health. For some banks, neither the DD nor the DD spread predicted the failures. However, those results were partly due to lack of transparency in financial statements and disclosed information.
Keywords: No keywords provided
JEL Codes: G19; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lack of Public Information (D82) | Predictive Power of DD (C52) |
| Distance to Default (DD) (Y20) | Bank Failure (G28) |
| DD Spread (Y10) | Bank Health (G21) |
| Distance to Default (DD) (Y20) | Financial Distress (G33) |