DEA as a tool for predicting corporate failure and success: A case of bankruptcy assessment
Using an additive super-efficiency data envelopment analysis (DEA) model, this paper develops a new assessment index based on two frontiers for predicting corporate failure and success. The proposed approach is applied to a random sample of 1001 firms, which is composed of 50 large US bankrupt firms randomly selected from Altman's bankruptcy database and 901 healthy matching firms. This sample represents the largest firms that went bankrupt over the period 1991-2004 and represents a full spectrum of industries. Our findings demonstrate that the DEA model is relatively weak in predicting corporate failures compared to healthy firm predictions, and the assessment index improves this weakness by giving the decision maker various options to achieve different precision levels of bankrupt, non-bankrupt, and total predictions.
Volume (Year): 39 (2011)
Issue (Month): 6 (December)
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional|
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.:
- 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.
- Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-89, September.
- Demyanyk , Yuliya & Hasan, Iftekhar, 2009.
"Financial crises and bank failures: a review of prediction methods,"
Research Discussion Papers
35/2009, Bank of Finland.
- Demyanyk, Yuliya & Hasan, Iftekhar, 2010. "Financial crises and bank failures: A review of prediction methods," Omega, Elsevier, vol. 38(5), pages 315-324, October.
- Yuliya Demyanyk & Iftekhar Hasan, 2009. "Financial crises and bank failures: a review of prediction methods," Working Paper 0904, Federal Reserve Bank of Cleveland.
- 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.
- Avkiran, Necmi K., 2011. "Association of DEA super-efficiency estimates with financial ratios: Investigating the case for Chinese banks," Omega, Elsevier, vol. 39(3), pages 323-334, June.
- Kahya, Emel & Theodossiou, Panayiotis, 1999. " Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology," Review of Quantitative Finance and Accounting, Springer, vol. 13(4), pages 323-45, December.
- Shanmugam, Ramalingam & Johnson, Charles, 2007. "At a crossroad of data envelopment and principal component analyses," Omega, Elsevier, vol. 35(4), pages 351-364, August.
- 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.
- 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.
- Molinero, C Mar & Ezzamel, M, 1991. "Multidimensional scaling applied to corporate failure," Omega, Elsevier, vol. 19(4), pages 259-274.
- Tam, KY, 1991. "Neural network models and the prediction of bank bankruptcy," Omega, Elsevier, vol. 19(5), pages 429-445.
- Du, Juan & Liang, Liang & Zhu, Joe, 2010. "A slacks-based measure of super-efficiency in data envelopment analysis: A comment," European Journal of Operational Research, Elsevier, vol. 204(3), pages 694-697, August.
- 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.
- Charnes, A. & Cooper, W. W. & Seiford, L. & Stutz, J., 1982. "A multiplicative model for efficiency analysis," Socio-Economic Planning Sciences, Elsevier, vol. 16(5), pages 223-224.
- Kao, Chiang & Liu, Shiang-Tai, 2004. "Predicting bank performance with financial forecasts: A case of Taiwan commercial banks," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2353-2368, October.
- 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.
- Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-47, May.
- Collins, Robert A. & Green, Richard D., 1982. "Statistical methods for bankruptcy forecasting," Journal of Economics and Business, Elsevier, vol. 34(4), pages 349-354.
When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:39:y:2011:i:6:p:620-626. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.