| dc.description.abstract | The Kenyan manufacturing industry is a major contributor of the country’s economy, contributing
significantly to GDP growth, job creation, and export opportunities. However,
despite its undeniable significance, the Kenyan manufacturing industry is grappling with
several challenges that are hampering its growth, with credit constraints being a prominent
issue. These challenge often lead to financial distress, forcing some companies to shut
down or operate below their optimal potential.This research introduces the Black-Scholes
Merton model, an eminent financial tool developed for option pricing, and proposes its
adaptation to the context of the Kenyan manufacturing industry. The model is applied
to gauge the default probabilities of manufacturing firms by integrating company-specific
financial data, volatility, and credit risk factors to assess default risks. The study is based
on financial reports published for sampled manufacturing companies in Kenya for the
financial years 2016 to 2022. The variables used to compute the probabilities of default
are total assets, time period, volatility, debt and risk-free interest rate. The data analysis
shows that default probabilities are directly proportional to the company’s liabilities. This
research is a comprehensive guide to the assessment, analysis and credit management. | en_US |
