A Critique of Credit Risk Models with Evidence from Mid‐Cap Firms

Allen, David E.; Powell, Robert; Singh, Abhay Kumar

doi:10.1002/9781119080305.ch11

Cited by 3 publications

(1 citation statement)

References 18 publications

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“…However, Liu et al (2021) contend that market-based measures are not suitable for developing countries with imperfect markets and less speculative investors. Allen et al (2015) point out that accounting-based models which comprise some basic ratios are easy to apply and more accurate when used for the same industry, compared to market-based models. Moreover, using international data, Agarwal and Taffler (2008) empirically conclude that accounting-based measures outperform market-based models in predicting bankruptcy.…”

Section: Methodsmentioning

confidence: 99%

Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

Al‐Dhamari

Al-Wesabi²,

Farooque

et al. 2023

IJAIM

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Purpose The purpose of this study is to empirically examine how the voluntary formation of a specialised investment committee (IC) and IC characteristics affect financial distress risk (FDR) and whether such impact is influenced by the level of investment inefficiency. Design/methodology/approach The authors use a large sample of Gulf Cooperation Council (GCC) non-financial companies during 2006–2016. A principal component analysis is done to aggregate and derive a factor score for IC characteristics (i.e. independence, size and meeting) as a proxy for the effectiveness of IC. This study also uses three measurements of FDR to corroborate the findings and partitions sample firms into overinvesting and underinvesting companies to examine the potential impact of investment inefficiency on the IC–FDR nexus. Findings Using feasible generalised least square estimation method, the authors document that the likelihood of financial distress occurrence decreases for firms with separate ICs. The authors also find that firms with effective ICs enjoy lower FDR. In other words, the probability of financial distress minimises if the IC is large, meets frequently and has a high number of independent directors. However, the authors find neither any moderation nor any mediation effect of investment inefficiency for the impact of IC and IC attributes on FDR. The additional analysis indicates the expected benefits of an actively performing IC are amplified for firms with risk of both over- and underinvestment. These findings are robust to alternative measures of FDR and investment inefficiency, sub-sample analysis and endogeneity concerns. Originality/value This study, to the best of researchers’ knowledge, is the first to provide evidence in GCC firms’ perspective, suggesting that the existence of an effective IC is associated with a lower risk of financial distress, and to some extent, the economic benefits of IC are aggrandised for companies with a high probability of over- and underinvestment problems. These results are unique and contribute to a small but growing body of literature documenting the need for effective ICs and their economic consequences on investment efficiency in the FDR environment. The findings of this study carry valuable practical implications for regulatory bodies, policymakers, investors and other interested parties in the GCC region.

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Section: Methodsmentioning

confidence: 99%

Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

Al‐Dhamari

Al-Wesabi²,

Farooque

et al. 2023

IJAIM

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A capital adequacy buffer model

Allen

McAleer

Powell

et al. 2015

Applied Economics Letters

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In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures distance to default and the timeless capital asset pricing model (CAPM) which measures additional returns to compensate for additional share price risk.

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Proactive biometric-enabled forensic imprinting

Alruban

Clarke

et al. 2016

2016 International Conference on Cyber Security and Protection of Digital Services (Cyber Security)

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Threats to enterprises have become widespread in the last decade. A major source of such threats originates from insiders who have legitimate access to the organization\u27s internal systems and databases. Therefore, preventing or responding to such incidents has become a challenging task. Digital forensics has grown into a de-facto standard in the examination of electronic evidence; however, a key barrier is often being able to associate an individual to the stolen data. Stolen credentials and the Trojan defense are two commonly cited arguments used. This paper proposes a model that can more inextricably links the use of information (e.g. images, documents and emails) to the individual users who use and access them through the use of steganography and transparent biometrics. The initial experimental results of the proposed approach have shown that it is possible to correlate an individual\u27s biometric feature vector with a digital object (images) and still successfully recover the sample even with significant file modification. In addition, a reconstruction of the feature vector from these unmodified images was possible by using those generated imprints with an accuracy of 100% in some scenarios

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A Critique of Credit Risk Models with Evidence from Mid‐Cap Firms

Cited by 3 publications

References 18 publications

Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

A capital adequacy buffer model

Proactive biometric-enabled forensic imprinting

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