Bank credit risk and structural credit models: Agency and information asymmetry perspectives

Hsien Hsing Liao*, Tsung-Kang Chen, Chia Wu Lu

*Corresponding author for this work

Research output: Contribution to journalArticle

34 Scopus citations

Abstract

This work investigates the effects of agency and information asymmetry issues embedded in structural form credit models on bank credit risk evaluation, using American bank data from 2001 to 2005. Findings show that both the agency problem and information asymmetry significantly cause deviations in the credit risk evaluation of structural form models from agency ratings. Five independent factors explain a deviation of 42.6-78.3% and should be incorporated into future credit risk modeling. Additionally, both the effects of information asymmetry and debt-equity agency positively relate to the deviation while that of management-equity agency relates to it negatively.

Original languageEnglish
Pages (from-to)1520-1530
Number of pages11
JournalJournal of Banking and Finance
Volume33
Issue number8
DOIs
StatePublished - 1 Aug 2009

Keywords

  • Agency problems
  • Bank credit risk
  • Information asymmetry
  • Structural form credit models

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