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Predicting Railroad Bankruptcies in America

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  • Edward I. Altman

Abstract

The purpose of this paper is to discuss the urgent need for an early-warning system covering the historically failure-prone railroad industry and to develop a tool for providing such a system. A multivariate statistical technique called linear discriminant analysis is utilized to identify and quantify those financial measures which are effective indicators of bankruptcies. A model which combined several financial statement ratios proved to be extremely accurate in predicting railroad bankruptcies at one and two annual financial statement dates prior to failure. Subsequent tests on additional railroad samples confirm the validity of the model. Finally, currently existing railroads in America are assessed for their bankruptcy potential by this diagnostic model.

Suggested Citation

  • Edward I. Altman, 1973. "Predicting Railroad Bankruptcies in America," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 184-211, Spring.
  • Handle: RePEc:rje:bellje:v:4:y:1973:i:spring:p:184-211
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    Cited by:

    1. Jordan, Jeffrey L., 1998. "Georgia Water Series -- Issue 3: Evaluating Water System Financial Performance And Financing Options," Faculty Series 16712, University of Georgia, Department of Agricultural and Applied Economics.
    2. repec:spr:svcbiz:v:11:y:2017:i:3:d:10.1007_s11628-016-0316-3 is not listed on IDEAS
    3. Edward I. Altman, 2013. "Predicting financial distress of companies: revisiting the Z-Score and ZETA® models," Chapters,in: Handbook of Research Methods and Applications in Empirical Finance, chapter 17, pages 428-456 Edward Elgar Publishing.
    4. Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2005. "Exploring interactions between real activity and the financial stance," Journal of Financial Stability, Elsevier, vol. 1(3), pages 308-341, April.
    5. Carling, Kenneth & Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2007. "Corporate credit risk modeling and the macroeconomy," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 845-868, March.
    6. Laitinen, Erkki K., 2007. "Classification accuracy and correlation: LDA in failure prediction," European Journal of Operational Research, Elsevier, vol. 183(1), pages 210-225, November.
    7. Tor Jacobson & Jesper Lindé & Kasper Roszbach, 2013. "Firm Default And Aggregate Fluctuations," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 945-972, August.
    8. Luigi Zingales, 1998. "Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 905-938, June.
    9. Ghassan Hossari, 2012. "Optimising errors in signaling corporate collapse using MCCCRA," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 20(3), pages 300-316, July.
    10. Carling, Kenneth & Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2002. "Capital Charges under Basel II: Corporate Credit Risk Modelling and the Macro Economy," Working Paper Series 142, Sveriges Riksbank (Central Bank of Sweden).
    11. Carling, Kenneth & Rönnegård, Lars & Roszbach, Kasper, 2004. "Is Firm Interdependence within Industries Important for Portfolio Credit Risk?," Working Paper Series 168, Sveriges Riksbank (Central Bank of Sweden).
    12. Richard C. Levin, 1981. "Regulation, Barriers to Exit, and the Investment Behavior of Railroads," NBER Chapters,in: Studies in Public Regulation, pages 181-230 National Bureau of Economic Research, Inc.
    13. Aznar Bellver, Jerónimo & Cervelló Royo, Roberto & García García, Fernando, 2011. "Una alternativa multicriterio a la valoración de empresas: aplicación a las Cajas de Ahorro/A Multicriteria Alternative to Companies’ Valuation: Application to a Spanish Savings Bank," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 29, pages 393(16á.)-3, Abril.
    14. Ali DERAN & Omer ISKENDEROGLU & Incilay ERDURU, 2014. "Regional Differences and Financial Ratios: A Comparative Approach on Companies of ISE City Indexes," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 946-955.
    15. Qunfeng LIAO & Seyed MEHDIAN, 2016. "Measuring Financial Distress And Predicting Corporate Bankruptcy: An Index Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 17, pages 33-51, June.
    16. Lucie Kureková & Pavlína Hejduková, 2016. "Construction Industry and Payment Discipline in the Czech Republic," European Financial and Accounting Journal, University of Economics, Prague, vol. 2016(3), pages 53-68.

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