Methodological comparison between DEA (data envelopment analysis) and DEA-DA (discriminant analysis) from the perspective of bankruptcy assessment
This study compares DEA (data envelopment analysis) with DEA-DA (discriminant analysis) in terms of bankruptcy assessment. Recently, many DEA researchers propose a use of DEA as a quick-and-easy tool to assess corporate bankruptcy. Meanwhile, other DEA researchers discuss a use of DEA-DA for bankruptcy-based financial analysis. The two groups are very different from the conventional use of DEA because we have long applied DEA to the measurement of operational performance, or productivity analysis. The two research groups open up a new application area (bankruptcy-based financial assessment) for DEA. This study discusses methodological strengths and weaknesses of DEA and DEA-DA from the perspective of corporate failure. The proposed comparative analysis has the three main criteria: (a) how to handle negative data in financial variables, (b) how to handle data imbalance between default and non-default firms, and (c) how to identify a failure process over time. This study finds that DEA is a managerial tool for the initial assessment of corporate failure and DEA is useful for busy corporate leaders and financial managers. In contrast, DEA-DA is useful for researchers and individuals who are interested in the detailed assessment of bankruptcy and its failure process in a time horizon.
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.
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.:
- John R. Graham & Michael L. Lemmon & James S. Schallheim, 1998. "Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status," Journal of Finance, American Finance Association, vol. 53(1), pages 131-162, 02.
- Lo, Andrew W., 1986. "Logit versus discriminant analysis : A specification test and application to corporate bankruptcies," Journal of Econometrics, Elsevier, vol. 31(2), pages 151-178, March.
- Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
- Dyson, R. G. & Allen, R. & Camanho, A. S. & Podinovski, V. V. & Sarrico, C. S. & Shale, E. A., 2001. "Pitfalls and protocols in DEA," European Journal of Operational Research, Elsevier, vol. 132(2), pages 245-259, July.
- Eisenbeis, Robert A, 1977. "Pitfalls in the Application of Discriminant Analysis in Business, Finance, and Economics," Journal of Finance, American Finance Association, vol. 32(3), pages 875-900, June.
- Sueyoshi, Toshiyuki, 1999. "DEA-discriminant analysis in the view of goal programming," European Journal of Operational Research, Elsevier, vol. 115(3), pages 564-582, June.
- Ravi Kumar, P. & Ravi, V., 2007. "Bankruptcy prediction in banks and firms via statistical and intelligent techniques - A review," European Journal of Operational Research, Elsevier, vol. 180(1), pages 1-28, July.
- Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
- Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-1089, September.
- Cielen, Anja & Peeters, Ludo & Vanhoof, Koen, 2004. "Bankruptcy prediction using a data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 154(2), pages 526-532, April.
- Glover, Fred & Sueyoshi, Toshiyuki, 2009. "Contributions of Professor William W. Cooper in Operations Research and Management Science," European Journal of Operational Research, Elsevier, vol. 197(1), pages 1-16, August.
- Sueyoshi, Toshiyuki, 2006. "DEA-Discriminant Analysis: Methodological comparison among eight discriminant analysis approaches," European Journal of Operational Research, Elsevier, vol. 169(1), pages 247-272, February.
- Sueyoshi, Toshiyuki, 2004. "Mixed integer programming approach of extended DEA-discriminant analysis," European Journal of Operational Research, Elsevier, vol. 152(1), pages 45-55, January.
- Sinuany-Stern, Zilla & Friedman, Lea, 1998. "DEA and the discriminant analysis of ratios for ranking units," European Journal of Operational Research, Elsevier, vol. 111(3), pages 470-478, December.
- William Cooper & Kyung Park & Jesus Pastor, 1999. "RAM: A Range Adjusted Measure of Inefficiency for Use with Additive Models, and Relations to Other Models and Measures in DEA," Journal of Productivity Analysis, Springer, vol. 11(1), pages 5-42, February.
- Premachandra, I.M. & Bhabra, Gurmeet Singh & Sueyoshi, Toshiyuki, 2009. "DEA as a tool for bankruptcy assessment: A comparative study with logistic regression technique," European Journal of Operational Research, Elsevier, vol. 193(2), pages 412-424, March.
- 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.
- 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, 09.
- Toshiyuki Sueyoshi, 2005. "Financial Ratio Analysis Of The Electric Power Industry," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 349-376.
- Sueyoshi, Toshiyuki, 2001. "Extended DEA-Discriminant Analysis," European Journal of Operational Research, Elsevier, vol. 131(2), pages 324-351, June.
- Collins, Robert A. & Green, Richard D., 1982. "Statistical methods for bankruptcy forecasting," Journal of Economics and Business, Elsevier, vol. 34(4), pages 349-354.
- Sueyoshi, Toshiyuki & Sekitani, Kazuyuki, 2009. "An occurrence of multiple projections in DEA-based measurement of technical efficiency: Theoretical comparison among DEA models from desirable properties," European Journal of Operational Research, Elsevier, vol. 196(2), pages 764-794, July.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:199:y:2009:i:2:p:561-575. 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: (Dana Niculescu)
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.