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Estimation of Firms' Default Rates in terms of Intangible Assets

February 7, 2014
Saiki Tsuchiya*1
Shinichi Nishioka*2

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Abstract

This paper quantitatively analyzes how firms' default rates are affected by intangible assets, which play a crucial role in business management but are difficult to assess objectively. We use intangible assets such as firms' technological capability and the qualifications of senior management, for which numerical data from each firm are available. The results are as follows: (1) intangible assets have statistical explanatory power for firms' default rates in addition to financial data; (2) a model that incorporates intangible assets has greater accuracy in estimating default rates than one that incorporates only financial data, and the difference in the accuracy is statistically significant; and (3) the impact of changes in intangible assets on firms' default rates is comparable with that of changes in financial data. Based on our analysis, it may be effective to take into consideration intangible assets to enhance the accuracy in estimating firms' default rates. Therefore, in assessing firms' credit risk, it is important to enhance the information on intangible assets to objectively assess these assets.

Keywords
Estimated default rates; Intangible assets; Logit model; Bootstrap method

The authors would like to thank the Bank of Japan's staff for their many valuable comments. Any errors are those of the authors. The views expressed here are those of the authors and should not be ascribed to the Bank of Japan or its Financial System and Bank Examination Department.

  •   *1 Financial System and Bank Examination Department
    E-mail : saiki.tsuchiya@boj.or.jp
  •   *2 Financial System and Bank Examination Department (currently Research and Statistics Department)
    E-mail : shinichi.nishioka@boj.or.jp

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