02003cas a2200253 a 4500 AALejournalIMF015322 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513597584 1018-5941 BD-DhAAL BD-DhAAL Law, Daniel. Assessing Default Risks for Chinese Firms : A Lost Cause? / Daniel Law, Shaun Roache. Washington, D.C. : International Monetary Fund, 2015. 1 online resource (32 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Assessing default risks for Chinese firms is hard. Standard measures of risk using market indicators may be unreliable because of implicit guarantees, the large role played by less-informed investors, and other market imperfections. We test this assertion by estimating stand-alone 1-year default probabilities for non-financial firms in China using an equity-based structural model and debt costs. We find evidence that the equity measure of default risk is sensitive to a firm's balance sheet health, profitability, and ownership; specifically, default probabilities are higher for weaker, less profitable, and state-owned firms. In contrast, measures based on the cost of debt seem largely detached from fundamentals and instead determined by implicit guarantees. We conclude that for individual firms, equity-based measures, while far from perfect, provide a better measure of stand-alone default risks than borrowing costs. Mode of access: Internet Roache, Shaun. IMF Working Papers; Working Paper ; No. 2015/140 Full text available on IMF http://elibrary.imf.org/view/journals/001/2015/140/001.2015.issue-140-en.xml IMF e-Library