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Evidence of Predicting Early Signs of Corporate Bankruptcy Using Financial Ratios in the Indian Landscape

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  • Adit Chopra
  • Abhi Bansal
  • Aryaman Wadhwa

Abstract

Corporate bankruptcy impacts the functioning of the economy as it impacts its various stakeholders: Shareholders, financial and operational lenders, and the government. This paper aims to study the impact of a wide array of profitability, leverage and efficiency ratios to predict early signs of bankruptcy in public listed companies in India using a logistic regression considering impacts at two levels: one year and two years before the filing of bankruptcy with the NCLT during the year 2019. The study proves that the accuracies of the classification model are 81.4% and 85.1% respectively for one year and two years before the bankruptcy.

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  • Adit Chopra & Abhi Bansal & Aryaman Wadhwa, 2020. "Evidence of Predicting Early Signs of Corporate Bankruptcy Using Financial Ratios in the Indian Landscape," Papers 2008.04782, arXiv.org.
    • Handle: RePEc:arx:papers:2008.04782
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    References listed on IDEAS

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    1. Sudheer Chava & Robert A. Jarrow, 2008. "Bankruptcy Prediction with Industry Effects," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 21, pages 517-549, World Scientific Publishing Co. Pte. Ltd..
    2. David Alaminos & Agustín del Castillo & Manuel Ángel Fernández, 2016. "A Global Model for Bankruptcy Prediction," PLOS ONE, Public Library of Science, vol. 11(11), pages 1-18, November.
    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. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    5. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    6. Alhassan Bunyaminu & Shani Bashiru, 2014. "Corporate Failure Prediction: A Fresh Technique for Dealing Effectively With Normality Based On Quantitative and Qualitative Approach," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(1), pages 1-12.
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