Credit risk, valuation and fundamental analysis

Realdon, Marco (2013) Credit risk, valuation and fundamental analysis. International Review of Financial Analysis, 27. pp. 77-90. ISSN 1057-5219

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Official URL: http://dx.doi.org/10.1016/j.irfa.2012.10.001

Abstract

This study explores how a firm's credit risk affects accounting based valuation of the firm, of its equity and of its debt. The valuation model integrates fundamental equity and credit analysis and, under appropriate conditions, abides by the value conservation principle even in the presence of credit risk. The term structures of credit spreads on corporate bonds and credit default swaps are linked to equity valuation and to pro-forma financial statements. Calibration of the valuation model to equity and credit market prices is feasible. The model explains how credit risk depresses price to earnings and price to book ratios.

Item Type: Article
Uncontrolled Keywords: Accounting based valuation, credit spreads, corporate bond valuation, equity valuation, default probability
Subjects: N100 Business studies
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Ay Okpokam
Date Deposited: 28 Aug 2013 10:51
Last Modified: 10 Aug 2015 10:57
URI: http://nrl.northumbria.ac.uk/id/eprint/13411

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