Credit Contagion Based On Defaults Dependency

In recent years, as the globalization of economics and finance, the connection between enterprises are becoming close and the influence between them is increasingly strong. In particular, defaults presents obvious aggregation, that is, when a firm defaults, other firms related will also have a bad operating condition and result in an event of default. This situation is so called default dependency. Default dependency is a way of credit contagion. It is a research emphasis for credit risk measurement to research on credit contagion based on defaults dependency.This thesis will set defaults of guaranteed loan as a starting point to research the following questions: Firstly, how to describe and measure the credit contagion effect from guaranteed firm’s defaults on the secured firm; Secondly, whether the defaults dependency will have a significant negative impact on secured firm’s operating conditions; Thirdly, if the negative impact is true, what is influence factors of the contagion effect.Historical data that China’s A-share listed companies as guarantors and the guaranteed firm defaults, is collected to study on the above issues. First, have a descriptive statistical analysis of these data as years, industries, regions and firm properties to observe the distribution; Then, using event studies to analyse guarantors’ abnormal return and cumulative abnormal return, shows that events of default will have a negative impact on guarantors; Finally, using theoretical model and empirical model to explore the influence factors of credit contagion effect, shows that exposure and volatility of guarantors have a significant impact on it, and in private enterprises, it is also depend on asset-liability ratio, number of guarantors and holding relations.Innovation and difficulty of the research work:firstly, collect the announcement that China’s A-share listed companies as guarantor when secured firm defaulted, and dig the data of guarantee amount and relationship between guarantor and secured firm, this work is never did in the past articles. Secondly, calculating abnormal return and cumulative abnormal return caused by default event, need a lot of daily rate of return of companies and market; Thirdly, the theoretical model requires MATLAB programming to do numerical simulation; Fourthly, according to China’s actual situation, the empirical model changes some explanatory variables on the basis of foreign literatures.Therefore, when companies provide guaratees for others, they need to take into account some factors, such as the amount of the guarantee and its own affordability, to control credit risk from counterparty and avoid being involved in crisis when guaranteed firm defaults.