Bankruptcy prediction using a discrete-time duration model incorporating temporal and macroeconomic dependencies
Abstract
The purpose of this paper is to build an alternative method of bankruptcy prediction that accounts for some deficiencies in previous approaches that resulted in poor out-of-sample performances. Most of the traditional approaches suffer from restrictive presumptions and structural limitations and fail to reflect the panel properties of financial statements and|or the common macroeconomic influence. Extending the work of Shumway (2001), we present a duration model with time-varying covariates and a baseline hazard function incorporating macroeconomic dependencies. Using the proposed model, we investigate how the hazard rates of listed companies in the Korea Stock Exchange (KSE) are affected by changes in the macroeconomic environment and by time-varying covariate vectors that show unique financial characteristics of each company. We also investigate out-of-sample forecasting performances of the suggested model and demonstrate improvements produced by allowing temporal and macroeconomic dependencies. Copyright © 2008 John Wiley & Sons, Ltd.Download Info
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 27 (2008)
Issue (Month): 6 ()
Pages: 493-506
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Cole, Rebel A. & Wu, Qiongbing, 2009. "Is hazard or probit more accurate in predicting financial distress? Evidence from U.S. bank failures," MPRA Paper 24688, University Library of Munich, Germany, revised 01 Aug 2010.
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