Applying modified KMV model to analyze the credit risk of listed firms in Chinese cement industry

摘要

Cement industry is the mainstay industry in China. The development of cement industry is highly correlated with the national economic development. However, cement industry requires a huge capital injection and financing is more difficult for this industry. So, the credit risk management of this industry is becoming a fundamental and crucial work. In this paper, we develop a novel model based on the original KMV model to measure the credit risk of Chinese cement industry. By adjusting some parameters in the basic model, we improve the predictive accuracy and find the adjusted model is more suitable for the cement industry in China. The KMV model assumes that the firm goes into bankruptcy with its default point at short-term debt plus half of the long-term debt. However, by using significance test of the difference of DD (default distance), we think default point in cement industry should be short-term debt plus 10% long-term debt. In addition, we think the value of the company's equity should include both tradable shares and limit sell shares and we find a way to calculate the value of the limit sell shares. Finally, by analyzing the total asset value, DD and EDF (expected default frequency) of 4 selected firms from year 2006 to 2011, we find financial crisis has great impact on Chinese cement industry. However, in the year 2009 and 2010, the large range of the establishment of the economic affordable housing and low-rent housing in China gives cement industry a chance to improve their products' quality and change their strategy to better meet the challenges in the future.