Jarrow, Robert, Donald R. van Deventer, Xiaoming Wang, "A Robust Test of Merton's Structural Model for Credit Risk", Journal of Risk, Vol. 6, No. 1, (Fall 2003), 39-58.
Abstract: This paper presents a robust test of Merton's structural model for credit risk that does not depend on either estimated parameters for the firm's value or estimated default probabilities. We derive a test for the consistency of the changes in observed debt and equity prices (positive or negative changes) with the Merton model. For all firms selected and for all debt issues examined, the evidence strongly rejects Merton's structural model.