Credit Default Risk Assessment of Listed Real Estate Firms Using the KMV Model

This study examines the credit default risk of Chinese listed real estate firms using the KMV structural credit risk model, with particular attention to market-based risk assessment and the limitations of conventional credit ratings. Drawing on data from 261 real estate firms listed on mainland China's A-share markets and the Hong Kong Stock Exchange between 2010 and 2023, the study estimates distance to default (DD) from equity market information and financial statement data. A logistic regression approach is employed to translate DD into estimated default probabilities, while receiver operating characteristic (ROC) analysis and firm-level case studies are used to evaluate risk discrimination and early-warning performance. The results reveal a substantial deterioration in the creditworthiness of mainland-focused property developers during the industry downturn, particularly in 2022–2023, alongside pronounced differences between mainland and non-mainland firms. The DD measure achieves an area under the ROC curve (AUROC) of 0.760, indicating moderate discriminatory ability within the evaluated sample. Comparative case studies further suggest that market-based risk indicators can provide more frequent signals of financial deterioration than conventional credit ratings, although their predictive reliability depends on appropriate calibration and validation. The findings highlight the potential of the KMV model as a supplementary instrument for credit risk monitoring while emphasizing the need for improved probability calibration, rigorous out-of-sample validation, and integration with firm-level and macroeconomic indicators.