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Indicator Of Financial Health Proposal And Its Impact On Probability Of Default, Propuesta De Un Indicador De Salud Financiera Y Su Efecto En La Prediccion Del Fracaso Empresarial

Author

Listed:
  • Antonina Modica-Milo
  • Juan Samuel Baixauli Soler
  • Susana Alvarez Diez

Abstract

In this paper, we develop a model for predicting a financial health (ISF) model based on the default probability of listed companies. Systematic risk affects both listed and unlisted companies. Our model can be applied to unlisted companies. To validate the effectiveness of the proposed ISF, we evaluate its affects using the predictive ability of most frequently used accounting models. For this purpose two indicators are constructed: the Cumulative Accuracy Profile (CAP) and the Receiver Operating Characteristics (ROC). These indicators are recommended by the Committee on Banking Supervision (BCBS). The results obtained show that the proposed ISF improves the predictive ability of accounting models.

Suggested Citation

  • Antonina Modica-Milo & Juan Samuel Baixauli Soler & Susana Alvarez Diez, 2012. "Indicator Of Financial Health Proposal And Its Impact On Probability Of Default, Propuesta De Un Indicador De Salud Financiera Y Su Efecto En La Prediccion Del Fracaso Empresarial," Revista Internacional Administracion & Finanzas, The Institute for Business and Finance Research, vol. 5(3), pages 19-40.
    • Handle: RePEc:ibf:riafin:v:5:y:2012:i:3:p:19-40
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    More about this item

    Keywords

    Bankruptcy; probability of failure; structural models and accounting-based models;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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