Article1973

Predicting Railroad Bankruptcies in America

162 citations0/0 files storedThe Bell Journal of Economics and Management Science

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Financial Distress and Bankruptcy Prediction Financial Analysis and Corporate Governance Corporate Insolvency and Governance

Abstract

The purpose of this paper is to discuss the urgent need for an early-warning system covering the historically failure-prone railroad industry and to develop a tool for providing such a system. A multivariate statistical technique called linear discriminant analysis is utilized to identify and quantify those financial measures which are effective indicators of bankruptcies. A model which combined several financial statement ratios proved to be extremely accurate in predicting railroad bankruptcies at one and two annual financial statement dates prior to failure. Subsequent tests on additional railroad samples confirm the validity of the model. Finally, currently existing railroads in America are assessed for their bankruptcy potential by this diagnostic model.

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References

1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1966Financial Ratios As Predictors of Failure 1970PREDICTION OF BANK FAILURES

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