The Korean Economic Forum
Development of Corporate Vulnerability Index and a Connection with Corporate Insolvency
Young Jun Choi (The Bank of Korea)Year 2018Vol. 10No. 4
Abstract
It has been considered that higher debts of a company tend to increase therisk of insolvency. By the way, unlike the debt to equity ratio, corporate defaulttheories implicate that many Korean companies are highly likely to face defaultconditions. Based on such motivation, this paper develops a new corporatevulnerability index. The result shows that the vulnerability index for chronicalmarginal companies corresponds to the bankruptcy rate. According to the panellogit model, the probability of turing into marginal or default-risk companiesfrom regular companies increases as the vulnerability index increase.}