Comparative analysis of failure prediction methods: the Finnish case
This paper first briefly discusses six alternative methods that have been applied to financial failure prediction: linear discriminant analysis, logit analysis, recursive partitioning, survival analysis, neural networks and the human information processing approach. The main objective was to study empirically whether the results stemming from the use of alternative methods differ from each other. This was conducted using the Finnish data one, two and three years prior to failure in empirical analysis. The results indicated that there was a statistically significant difference in prediction accuracy only between logistic analysis and survival analysis one year prior to failure. Two and three years prior to failure statistically significant differences were not found. The results indicate, with the three variables employed in this study, that no superior method has been found. Even one of the latest applications, neural networks, is in its present form only as effective as discriminant analysis was as early as thirty years ago.
Volume (Year): 8 (1999)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/REAR20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/REAR20|
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.:
- Frydman, Halina & Altman, Edward I & Kao, Duen-Li, 1985. " Introducing Recursive Partitioning for Financial Classification: The Case of Financial Distress," Journal of Finance, American Finance Association, vol. 40(1), pages 269-91, March.
- Hamer, Michelle M., 1983. "Failure prediction: Sensitivity of classification accuracy to alternative statistical methods and variable sets," Journal of Accounting and Public Policy, Elsevier, vol. 2(4), pages 289-307.
- Luoma, M & Laitinen, EK, 1991. "Survival analysis as a tool for company failure prediction," Omega, Elsevier, vol. 19(6), pages 673-678.
- Edmister, Robert O., 1972. "An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(02), pages 1477-1493, March.
- Peel, MJ & Peel, DA & Pope, PF, 1986. "Predicting corporate failure-- Some results for the UK corporate sector," Omega, Elsevier, vol. 14(1), pages 5-12.
- Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
- Kar Yan Tam & Melody Y. Kiang, 1992. "Managerial Applications of Neural Networks: The Case of Bank Failure Predictions," Management Science, INFORMS, vol. 38(7), pages 926-947, July.
- Tam, KY, 1991. "Neural network models and the prediction of bank bankruptcy," Omega, Elsevier, vol. 19(5), pages 429-445.
When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:8:y:1999:i:1:p:67-92. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.