The Ooghe-Joos-De Vos failure prediction models: a cross-industry validation

Abstract

Faced with the question whether the Belgian failure prediction models by Ooghe, Joos and De Vos (1991) can be easily applied in all industries and for all sizeclasses, this study compares the performance of the OJD models across 18 different industries and different sizeclasses. After a brief theoretical review of the logistic regression modelling technique, which was used to design the OJD 1991 models, and the performance measures that are used to evaluate these models, we report type I and type II error rates corresponding with the original cut-off points of the models. Furthermore, we calculate new optimal cut-off points, as well as Ginicoefficients. Finally we report the reductions in unweighted error rates when using the new cut-off points instead of the original ones, and the graphs of the trade-off functions. As can be concluded from the performance results and the trade-off functions, there’s a wide range of performances for the different industries. However, we notice that the OJD 1991 models perform best for classical manufacturing industries- such as chemicals, paper and printing, textiles and apparel, paper and printing and metal- and financial services., while the models show the worst performance for service industries- such as real estate, hotel,

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