earticle

영어

The global financial crisis in 2008 was spreading to object economy through financial institutions, thus at that time many domestic construction companies whose abilities to meet debt obligations were worried became financially distressed. The distress of the construction and real estate industry caused domestic banks’ deteriorating of financial soundness. Also it influenced to domestic economy by direct and indirect production decrease and reduced employment. During recession, as bankruptcy rate increases financial intermediaries need more funds thus they reduce loan offerings. After all recession increases macro economic crisis. Procyclicality by financial intermediaries is mainly due to the limit of measuring firms’ credit risk. Recently major domestic construction firms with high volume of overseas plant business began to reflect large scale losses in settling accounts from 2013 and their financial condition has not improved. This kind of accounting method, treating cumulative loss in certain financial year, is called Big Bath. Such accounting methods by the order-receiving industries set limits to credit management for financial intermediaries by bankruptcy detecting model using firms’ past financial data for measuring a firm’s default. In this study we modify Moody’s KMV model to apply to the domestic construction industry debt structure and calculate default distance and empirical EDF. And we analyzed lead-lag relation of construction macro-economic indexes using VAR model and conducted impact response analysis of each macro-economic index as 1 standard deviation change of EDF model using VECM model. By this analysis we test empirically whether EDF model can evaluate industry risk in advance. We reviewed literature related to construction cycle and construction firms’ default prediction and chose indicators that can diagnose construction cycle. And we empirically analysed the relation between the chosen indexes and the construction industry EDF. The study results show that EDF lead the leading and the coincident index of construction cycle, which means EDF is useful as a measure for analysing an industry, especially the construction industry. Also these study results can help financial institutions that have financial relations with the construction industry to control the relations in advance. Due to the these characteristics of the construction industry, financial institutions need to know the information and criteria to evaluate the related information to make appropriate decisions in advance. Otherwise considering the size of the construction industry and the size of the loans to the industry from domestic financial institutions, the economy of this country may be in trouble under inappropriate decisions. In this study we focused on the construction industry. Considering the fact that each industry can have its own customary practice regarding financial statement, financial institutions should be vigilant to find and apply the most appropriate method to evaluate the firms in the industry.