Corporate Default Prediction among Tehran Stock Exchange’s Selected Industries

Document Type : Original Article

Authors

1 Ph.D. in Accounting and Professor, Allameh Tabataba’i University

2 Ph.D. in Industrial Engineering and Associate Professor, Allameh Tabataba’i University

3 Ph.D. in Finance, Allameh Tabataba’i University

Abstract

This study aims to present a model for predicting corporate default among Tehran Stock Exchange’s selected industries. To do this, corporate default drivers were identified and selected by referring to previous research findings and using experts’ opinions. These drivers were divided into five categories: accounting ratios, market variables, macroeconomic indicators, nonfinancial factors, and earnings quality measures. Structural equation modeling (SEM) technique was used to derive the prediction model. In this technique, corporate default drivers were used as latent independent variables, and their constituent factors were considered as observable indicators of the above variables. In addition, corporate default, as the latent dependent variable, was calculated by a measure based on the Black-Scholes-Merton (BSM) option pricing model. After implementing structural equation modeling (SEM) technique by use of Smart PLS software, a prediction model that contains influential drivers of corporate default was derived and presented for each of the selected industries.

Keywords


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