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Investigating the solvency of brazilian credit unions using a proportional hazard model

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  • Marcelo J. Braga
  • Valéria G. Fully Bressan
  • Enrico A. Colosimo
  • Aureliano A. Bressan

Abstract

**: Due to high interest rates and bank spreads, the number of credit unions in Brazil has increased over recent years. As financial institutions, these cooperatives need tools to signal impending financial problems. This paper focuses on one tool that can be used to evaluate credit union solvency: the Cox Proportional Hazards Model. A sample of 80 credit unions from the Brazilian state of Minas Gerais was selected to supply data. The analysis period is between December 2001 and June 2003. The results indicate that the relevant indicators for insolvency prediction are, in descending order of predictive ability, General Liquidity, Salary and Benefit Expenses, and the Loan/Equity Ratio. In general, results produced using the delineated theoretical model were in consonance with international literature.

Suggested Citation

  • Marcelo J. Braga & Valéria G. Fully Bressan & Enrico A. Colosimo & Aureliano A. Bressan, 2006. "Investigating the solvency of brazilian credit unions using a proportional hazard model," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(1), pages 83-106, March.
    • Handle: RePEc:bla:annpce:v:77:y:2006:i:1:p:83-106
    DOI: 10.1111/j.1370-4788.2006.00298.x
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    References listed on IDEAS

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    1. McKillop, D. G. & Glass, J. C. & Ferguson, C., 2002. "Investigating the cost performance of UK credit unions using radial and non-radial efficiency measures," Journal of Banking & Finance, Elsevier, vol. 26(8), pages 1563-1591, August.
    2. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Gary Whalen, 1991. "A proportional hazards model of bank failure: an examination of its usefulness as an early warning tool," Economic Review, Federal Reserve Bank of Cleveland, vol. 27(Q I), pages 21-31.
    5. Bressan, Valéria Gama Fully & Braga, Marcelo José & Bressan, Aureliano Angel, 2004. "Análise do risco de insolvência pelo modelo de Cox: uma aplicação prática," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 44(0), January.
    6. Edward I Altman & Tara K N Baidya & Luis Manoel Ribeiro Dias, 1979. "Assessing Potential Financial Problems for Firms in Brazil," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 10(2), pages 9-24, June.
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    Cited by:

    1. Lin, Ching-Chung & Yang, Shou-Lin, 2016. "Bank fundamentals, economic conditions, and bank failures in East Asian countries," Economic Modelling, Elsevier, vol. 52(PB), pages 960-966.

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