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Are failure prediction models transferable from one country to another? An empirical study using financial statements

Author

Listed:
  • Hubert Ooghe

    ()

  • Sofie Balcaen

    (Vlerick Leuven Gent Management School)

Abstract

Faced with the question as to whether failure prediction models (multiple discriminant and logit analysis) from different countries can easily be transferred to other countries, this study examines the validity of a range of models on a dataset of Belgian company accounts, both when using the original and re-estimated coefficients. Firstly, contrary to expectations, models that show bad performance results with the original coefficients reveal an improvement are re-estimation of the coefficients, while models that perform well reveal a decrease in performance. On average, the failure prediction power of the models deteriorates after re-estimation of the coefficients. The Belgian Ooghe-Joos-De Vos and Ooghe-Verbaere models seem to be generally the best-performing models one and three years prior to failure. Furthermore, if the term of failure prediction is longer: (1) it seems more difficult to distinguish between models performing well and badly and (2) the average failure prediction abilities of the models decrease. Finally - rather than the estimation technique, the complexity and the number of variables - the type of variables included in the models appears to be an important explanatory factor for model performance. This study makes a strong case for including all different aspects of the financial situation in a failure prediction model.

Suggested Citation

  • Hubert Ooghe & Sofie Balcaen, 2002. "Are failure prediction models transferable from one country to another? An empirical study using financial statements," Vlerick Leuven Gent Management School Working Paper Series 2002-3, Vlerick Leuven Gent Management School.
  • Handle: RePEc:vlg:vlgwps:2002-3
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    Cited by:

    1. Péter Bauer & Marianna Endrész, 2016. "Modelling Bankruptcy Using Hungarian Firm-Level Data," MNB Occasional Papers 2016/122, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Alessandra Amendola & Marialuisa Restaino & Luca Sensini, 2013. "Corporate Financial Distress And Bankruptcy: A Comparative Analysis In France, Italy And Spain," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 1(2), pages 131-142, November.
    3. Valentina Neganova & Aleksandr Shemetev, 2011. "Matrix suites applying when making the commercial-company-activity-andfinancial-risks-express-diagnostics," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 228-233.
    4. Karina ALVES & Aquiles KALATZIS & Alberto BORGES MATIAS, "undated". "Survival Analysis of Private Banks in Brazil," EcoMod2009 21500002, EcoMod.

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