Forecasting Bankruptcy More Accurately: A Simple Hazard Model

2001/01/01 by Tyler Shumway · 12 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Credit Risk and Financial Regulations #Corporate Finance and Governance #Banking stability, regulation, efficiency

paper · doi:10.1086/209665

Abstract

I argue that hazard models are more appropriate than single-period models for forecasting bankruptcy. Single-period models are inconsistent, while hazard models produce consistent estimates. I describe a simple technique for estimating a discrete-time hazard model. I find that about half of the accounting ratios that have been used in previous models are not statistically significant. Moreover, market size, past stock returns, and idiosyncratic returns variability are all strongly related to bankruptcy. I propose a model that uses both accounting ratios and market-driven variables to produce out-of-sample forecasts that are more accurate than those of alternative models. Copyright 2001 by University of Chicago Press.

Cited by

• The Effects of Cultural Values on Bank Failures around the World
• The Politics of Bank Failures: Evidence from Emerging Markets
• Does Other Comprehensive Income Volatility Influence Credit Risk and the Cost of Debt?
• Finance Capitalism and Germany's Rise to Industrial Power
• Auditor‐in‐Charge Characteristics and Going‐concern Reporting
• A Global Model for Bankruptcy Prediction. [europepmc]
• Characterisation of survivability resilience with dynamic stock interdependence in financial networks. [europepmc]
• Using critical slowing down indicators to understand economic growth rate variability and secular stagnation. [europepmc]
• Automated credit assessment framework using ETL process and machine learning. [europepmc]
• Financial crisis early warning of Chinese listed companies based on MD&A text-linguistic feature indicators. [europepmc]
• Predictive modeling of corporate financial risk and its implications for health economics and public health efficiency. [europepmc]
• The Resilience of African Banks in the COVID-19 Crisis: A Study on the Macroprudential Stress Test of Banks in the WAEMU Zone [europepmc]

Related

• Do forecasts of bankruptcy cause bankruptcy? A machine learning sensitivity analysis
• Are Foundation Models Useful for Bankruptcy Prediction?
• A Race for Long Horizon Bankruptcy Prediction
• Bankruptcy Prediction of Small and Medium Enterprises Using a Flexible Binary Generalized Extreme Value Model
• Benchmarking Machine Learning Models to Predict Corporate Bankruptcy