Can J Adm Sci
Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.
134
25(2), 134–152
Estimation of the Default Risk of
Publicly Traded Companies: Evidence
from Canadian Data
Georges Dionne*
Sadok Laajimi
Sofi ane Mejri
Madalina Petrescu
HEC Montréal
Canadian Journal of Administrative Sciences
Revue canadienne des sciences de l’administration
25: 134–152 (2008)
Published online in Wiley Interscience (www.interscience.wiley.com). DOI: 10.1002/CJAS.62
Financial support by Bank of Canada, CREF, and Institut de Finance
Mathématique de Montréal (IFM2) is acknowledged. We would like to
thank Pierre St-Amant, Toni Gravelle, Céline Gauthier, Mathieu
Maurice, Pascal François, Lawrence Kryzanowski, the fi nance division
editor, Jason Wei, and one referee for their valuable comments on previ-
ous versions of this article.
*Please address correspondence to: Georges Dionne, Canada Research
Chair in Risk Management, HEC Montréal, 3000 Chemin de la Côte-
Sainte-Catherine, Montreal, Quebec, Canada, H3T 2A7. Tel: (514)340-
6596. Fax: (514)340-5019. Email: georges.dionne@hec.ca
Abstract
Through Canadian publicly traded companies, this study
assessed how combining fi rms’ continuous valuations by
the market (structural model) with the value given in
their fi nancial statements (accounting model) could
enhance prediction of a company’s probability of default.
The hybrid model outperformed other models. Specifi -
cally, estimated structural probabilities of default (PDs)
contributed signifi cantly to predicting default probabili-
ties when they were included alongside accounting and
macroeconomic variables in our hybrid model. These
results were obtained with two versions of the structural
model: the Merton model (Merton, 1973, 1974) and the
default barrier model (Brockman & Turtle, 2003). Both
models were estimated with the maximum likelihood
method. Copyright © 2008 ASAC. Published by John
Wiley & Sons, Ltd.
JEL classifi cations: G21, G24, G28, G33.
Keywords: default risk, accounting model, hybrid
mode