The effect of brexit on the probabilities of default of the FTSE 100’s companies

• Autor(a) principal: Miguel, Inês Margarida Frazão de Almeida
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/38695
• topic: Probabilities of default; Brexit; Maximum likelihood estimation; Structural credit risk models; Probabilidades de falência; Estimação de máxima verossimilhança; Modelos estruturais de risco de crédito; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The main goal of this dissertation is to understand whether Brexit had any impact on the probabilities of default of the FTSE 100’s companies, as well as to perceive if this impact was any different when considering only firms that are a part of the financial sector. In this research, the firms’ distance to default was computed using the Merton Model, calibrated applying the Maximum Likelihood Approach (Duan, 1994). Then, it was studied whether the distance to default changed more than expected in a number of days, following the classification performed by Korus and Celebi (2019). Two regression analysis were performed. The first one took as dependent variable the daily change in firms’ distance to default, computed from the probabilities of default previously obtained. As explanatory variables, a dummy variable comprising the Brexit-related event days was considered along with several control variables. Using a sample of 56 FTSE 100’s companies, during the period of January 2013 and December 2020, the Brexit dummy was not found to be significant at a 5% level. In the second regression, the Brexit dummy variable was considered only for the financial sector firms. Again, the Brexit dummy was not found to be significant at a 5% level. Consequently, this dissertation was not able to show the existence of a significant relationship between Brexit and the probabilties of default of the FTSE 100’s companies.