Hunting the Living Dead: A 'Peso Problem' in Corporate Liabilities Data

28 Pages Posted: 15 Jun 2005

See all articles by Matteo Manera

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Umberto Cherubini

University of Bologna - Department of Economics

Date Written: May 2005

Abstract

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on the short maturity end. Possible explanations stem from strategic debt service behavior and, as discovered more recently, the problem of accounting transparency. This raises the possibility that some of these flaws could be reconducted to a sort of peso problem, i.e. that the market may ask for a premium in order to allow for a small probability that accounting data may actually be biased (Baglioni and Cherubini, 2005). In this paper we propose a modified version of the Duan (1994,2000) MLE approach to structural models estimation in order to allow for this peso problem effect. The model is estimated for the Parmalat case, one of the most famous cases of accounting opacity, using both equity and CDS data.

Keywords: Credit risk, Corporate debt, Peso problem, Maximum likelihood, Transformed data

JEL Classification: C22, G33

Suggested Citation

Manera, Matteo and Cherubini, Umberto, Hunting the Living Dead: A 'Peso Problem' in Corporate Liabilities Data (May 2005). Available at SSRN: https://ssrn.com/abstract=731543 or http://dx.doi.org/10.2139/ssrn.731543

Matteo Manera (Contact Author)

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

Umberto Cherubini

University of Bologna - Department of Economics ( email )

Strada Maggore, 45
Bologna, FI 40125
Italy
+ +39 051 2092615 (Phone)

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