The expected cost of default

• 成果类型: Article
• 署名作者: Glover, Brent
• 署名单位: Carnegie Mellon University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2015.09.007
• 发表日期: 2016
• 页码: 284-299
• 关键词: Default costs; structural estimation; Costs of financial distress; Dynamic capital structure

摘要

The sample of observed defaults significantly understates the average firm's true expected cost of default due to a sample selection bias. I use a dynamic capital structure model to estimate firm-specific expected default costs and quantify the selection bias. The average firm expects to lose 45% of firm value in default, a cost higher than existing estimates. However, the average cost among defaulted firms in the estimated model is only 25%, a value consistent with existing empirical estimates from observed defaults. This substantial selection bias helps to reconcile the levels of leverage and default costs observed in the data. (C) 2015 Elsevier B.V. All rights reserved.