After IMF era, there were many changes in domestic economic circumstances. So We have couldn‘t trust the results of the old studies about the cause of enterprise insolvency. Therefore we need new default prediction model that is suitable for new domestic economic circumstances.
KMV default prediction model is based on the option pricing model and use the market informations such as interest rates or stock prices which are resulted from the future cash flows. So it is in the spotlight as a model that gives a criterion which heads for future, and predicts time series changes of the corporate value fast and exactly.
In this paper, domestic data about the firms which experienced the corporate insolvency are adopted to KMV model. So this paper tried to study on prediction power of the DD(Distance to Default) in KMV model in case of domestic environment.
The results of the empirical study are as follows. First, total average DDs were statistically different between default and non-default companies all the sample period 3 years. Secondly, the economic shock such as IMF period reduced the prediction power of the model. So the analysis of whole market is a prerequisite for offsetting the effect of economic shock. Thirdly, the prediction power and default-prediction time were different by types of industry. Fourthly, the smaller the firm-size were, the higher the prediction power of the model became. Lastly, this paper showed that DD could be used as a variable in other statistical default-prediction model.
