Empirical Research on Credit Condition of Chinese Listed Corporation with KMV Default Model

Over the past decade, commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognized and encouraged by bank regulators. Recently, there are been a flurry of developments in the field of credit risk modeling. KMV Corporation, a firm specialized in credit risk analysis, has developed a credit risk methodology based on Merton, as well as an extensive database, to assess default probabilities and the loss distribution related to both default and migration risks. This paper made an empirical research on the credit condition of Chinese listed corporation with KMV default model, and demonstrated the practicability and operation of this kind of method. Also we find that this method could be one of the important references for investment decision of financial institution in China.