Journal
INTERNATIONAL JOURNAL OF INFORMATION TECHNOLOGY & DECISION MAKING
Volume 10, Issue 2, Pages 269-285Publisher
WORLD SCIENTIFIC PUBL CO PTE LTD
DOI: 10.1142/S0219622011004324
Keywords
Integrated lines of credit; default probability; enterprise group; ratio of shareholding
Categories
Funding
- National Natural Science Foundation of China [70971015, 70901011, 70921061]
- Fundamental Research Funds for the Central Universities [ZYGX2009J112]
- Ministry of Education of China [09XJC630002, 10XJC630001]
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A line of credit is one of the most flexible financing tools for companies. Banks give companies lines of credit to strengthen their profitability and competitive ability. On the other hand, companies draw the lines of credit that will increase banks' credit risk. It is very difficult for banks to determine the lines of credit for an enterprise group. Based on principle of credit risk evaluation and structural model, this paper first defines bank's tolerable default risk and lines of credit, and then analyzes integrated lines of credit of parent and subsidiary companies. The results of this research indicate that the lines of credit of single company is related to its asset value growth, and integrated lines of credit of an enterprise group is also related to member's asset value growth and the associated relationships. Furthermore, this study shows that the integrated lines of credit of an enterprise group can be determined by the weighted sum of member's lines of credit and the computational formula of weight. This study provides a quantitative analysis tool to ascertain the enterprise group's integrated lines of credit and analyze how the associated relationships affect the integrated lines of credit.
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