Reseach On The Enterprise Group’s Internal Credit Contagion Mechanism And Credit Risk Control

The relationship within enterprise group is complex and intricate, which makes credit risk has strong contagiousness among group members. Clarifying the infectious process between two or more group members, finding what factors affect the contagion intensity and how it affect, predicting the future trend of credit infection and knowing how to take dynamic risk control, will be important for enterprise group’s total credit risk management theoretically and practically. Therefore, this dissertation mainly studies the internal credit contagion mechanism and credit control for enterprise group. The contents and conclusions are divided into two parts as following.(1) Research on the enterprise group’s internal credit contagion mechanism.Credit risk contagion involves two or more companies. It is observed that the interrelated guarantee is an important transmission channel for credit risk infection between two companies. Therefore this essay studies the credit risk contagion mechanism between parent company and its subsidiary company when they have interrelated guarantee relationships. Our study found that the credit contagious intensity has no relationship with parent company’s debt senior refunding order, but has relationship with subsidiary company’s debt senior refunding order if the parent company offered interrelated guarantee to its subsidiary company. This contagious intensity has route dependence and related with the equity proportion between parent company and its subsidiary company and the ratio of guarantee amount to total assets. Regardless of whatever contagion route, the credit default probability will increase with the rising of the subsidiary company’s equity proportion to its parent company. And the related guarantee is not fully insured. The default probability of interrelated guarantee loans is higher than common ones and it is also the monotone increasing function of equity proportion. Due to the size of the collateral value and business groups’ s internal risk reserve determine whether the related guarantees will reduce the group’s real credit quality. Thus, using the vulnerable option pricing method, this essay measured the guarantee value of two different interrelated guarantee ways, and took the comparative static analysis. Above findings enrich the present theoretical study of credit risk contagion between parent company and subsidiary company.Credit risk infection between two member companies can also be shown in their default correlation. One typical manifestation is that the influence of default correlation between two member companies will increase over time. Then, we introduce one special function, which is called “exponential increasing function”, into the default correlation structure. Using the technique of measurement transformation, we get the default probability of two companies and the marginal distribution of joint default time. Furthermore, we have the no-arbitrage price of credit default swap under this correlation structure. This is a useful supplement to the study of two companies’ default correlation.In this dissertation, it takes the proportion of credit abnormal companies, which has low credit grade and poor credit quality, as the entry point to analyze the internal credit contagion mechanism of enterprise group. This essay regards enterprise group as a graph, member companies can be seen as nodes in the graph and the direct contact is the edge of the graph. Using the epidemiologic theory, it constructs the stochastic dynamic mechanism model for enterprise group’s internal credit contagion. Preliminary analysis finds that the future trend of credit risk contagion in enterprise group is determined by both “effective contact rate” and “treatment rate”. When the effective contact rate is no higher than the treatment rate, the credit abnormal companies eventually become credit normal ones by firm merging, asset restructuring, and configuration optimizing. When the effective contact rate is higher than the treatment rate, as time passes, the proportion of the credit abnormal companies will tend toward a stable value.(2) Research on the enterprise group’s internal credit risk control.This essay researches on the enterprise group’s internal credit risk control from the following respect: group’s credit risk evaluation, time and control strategy for risk management, and the selection of control node.Because the business group’s credit risk assessment ultimately implements in the credit risk evaluation of each member firm, and the affiliated companies can be divided into two different groups, i.e. listed companies and non-listed companies. In view of this, this essay proposes the M-KMV model for the credit risk evaluation of listed member companies, and SVM ensemble classifier for the counterparty. Empirical studies have shown that these two methods can meet the needs of credit risk assessment for different types of group member. Thus, these two credit risk evaluation methods have good potential application in the future.Based on the analysis of dynamic credit contagion mechanism model, this essay forecasts the peak arrival time of default. Then the reasonable treatment time should be ahead of this. At the same time, the results of sensitivity analysis for credit contagion model parameters shows that reducing infection coefficient and credit risk correlation degree or increasing risk treatment rate can both control the contagion trend within enterprise group. Furthermore, reducing risk infection coefficient is a more efficient way than increasing treatment rate. Additionally, strengthen the internal capital management can reduce random noise of the external environment, and then delay the rapid infection. Finally, this paper presents an example to show how to use isomorphic skills which in graph theory and Kruskal algorithm, a method to seek the minimum spanning tree, to find out the risk control node.