Factors Affecting the Probability of Bankruptcy: A Managerial Decision Based Approach
The majority of classification models developed have used a pool of financial ratios combined with statistical variable selection techniques to maximise the accuracy of the classifier being employed. Rather than follow an "ad hoc" variable selection process, this paper seeks to provide an economic basis for the selection of variables for inclusion in bankruptcy models, which are based on accounting information. Variables which occur in bankruptcy probability expressions derived from the solution of an stochastic optimising model for a firm are 'proxied' by variables constructed from financial statement data. The random nature of the life time of a single firm provides the rationale for the use of duration or hazard-based statistical methods in the validation of the derived bankruptcy probability expressions. The Cox (1972) proportional hazards model is used to estimate the coefficients and standard errors that are required for the validation of the derived bankruptcy probability expressions. Results of the validation exercise confirm that the variables included in the empirical hazard formulation behave in a way that is consistent with the model of the firm.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 43 (2007)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0001-3072 |
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0001-3072|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
- Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
- Lennox, Clive, 1999. "Identifying failing companies: a re-evaluation of the logit, probit and DA approaches," Journal of Economics and Business, Elsevier, vol. 51(4), pages 347-364, July.
- Scott, James, 1981. "The probability of bankruptcy: A comparison of empirical predictions and theoretical models," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 317-344, September.
- Grice, John Stephen & Ingram, Robert W., 2001. "Tests of the generalizability of Altman's bankruptcy prediction model," Journal of Business Research, Elsevier, vol. 54(1), pages 53-61, October.
- Mossman, Charles E, et al, 1998. "An Empirical Comparison of Bankruptcy Models," The Financial Review, Eastern Finance Association, vol. 33(2), pages 35-53, May.
- Pinches, George E & Mingo, Kent A & Caruthers, J Kent, 1973. "The Stability of Financial Patterns in Industrial Organizations," Journal of Finance, American Finance Association, vol. 28(2), pages 389-96, May.
When requesting a correction, please mention this item's handle: RePEc:bla:abacus:v:43:y:2007:i:3:p:303-324. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.