PROBABILITY OF DEFAULT, INTEREST MARGIN, AND BANK EFFICIENCY: EMPIRICAL TEST OF MERTON MODEL IN INDONESIAN BANKING

Buddi Wibowo

doi:10.21776/ub.jam.2017.015.02.05

PROBABILITY OF DEFAULT, INTEREST MARGIN, AND BANK EFFICIENCY: EMPIRICAL TEST OF MERTON MODEL IN INDONESIAN BANKING

Buddi Wibowo

Department of Management

Research output: Contribution to journal › Article › peer-review

Abstract

Measurement of bank failure risk is still a challenging research problem. This study is aimed to measure the Indonesia banks probability of bankruptcywith Model Merton which has the better predictive power and is based on a far stronger financial theoretical frameworkcompared to the popular bankruptcy prediction model which is categorized by Sundaresan (2013) as a theoretical model such as Altman Z-score model and Ohlson 0 score more popular. The study also examine the relationship of bank efficiency and market power with its probability of default. The test results demonstrate that bank efficiency significantly affects the dynamics of bank’s default risk.

Original language	English
Pages (from-to)	219-228
Journal	Jurnal Aplikasi Manajemen
Volume	15
Issue number	2
DOIs	https://doi.org/10.21776/ub.jam.2017.015.02.05
Publication status	Published - 1 Jun 2017

Keywords

Probability of Default; Risk; Efficiency; Bank; Merton Model.

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http://jurnaljam.ub.ac.id/index.php/jam/article/view/1082Licence: CC BY-NC

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abstract = "Measurement of bank failure risk is still a challenging research problem. This study is aimed to measure the Indonesia banks probability of bankruptcywith Model Merton which has the better predictive power and is based on a far stronger financial theoretical frameworkcompared to the popular bankruptcy prediction model which is categorized by Sundaresan (2013) as a theoretical model such as Altman Z-score model and Ohlson 0 score more popular. The study also examine the relationship of bank efficiency and market power with its probability of default. The test results demonstrate that bank efficiency significantly affects the dynamics of bank{\textquoteright}s default risk.",

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N2 - Measurement of bank failure risk is still a challenging research problem. This study is aimed to measure the Indonesia banks probability of bankruptcywith Model Merton which has the better predictive power and is based on a far stronger financial theoretical frameworkcompared to the popular bankruptcy prediction model which is categorized by Sundaresan (2013) as a theoretical model such as Altman Z-score model and Ohlson 0 score more popular. The study also examine the relationship of bank efficiency and market power with its probability of default. The test results demonstrate that bank efficiency significantly affects the dynamics of bank’s default risk.

AB - Measurement of bank failure risk is still a challenging research problem. This study is aimed to measure the Indonesia banks probability of bankruptcywith Model Merton which has the better predictive power and is based on a far stronger financial theoretical frameworkcompared to the popular bankruptcy prediction model which is categorized by Sundaresan (2013) as a theoretical model such as Altman Z-score model and Ohlson 0 score more popular. The study also examine the relationship of bank efficiency and market power with its probability of default. The test results demonstrate that bank efficiency significantly affects the dynamics of bank’s default risk.

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PROBABILITY OF DEFAULT, INTEREST MARGIN, AND BANK EFFICIENCY: EMPIRICAL TEST OF MERTON MODEL IN INDONESIAN BANKING

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Keywords

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