Articlehybrid2014

Bankruptcy Prediction Model: The Case of the United States

32 citations0/0 files storedInternational Journal of Economics and Finance

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Financial Distress and Bankruptcy Prediction Corporate Insolvency and Governance Forecasting Techniques and Applications

Abstract

United States has faced a growing number of corporate bankruptcies since the subprimes crisis. This paper aims to develop an econometric forecasting model constructed from three simple and easily available financial ratios. We used a matched-pair sample of US quoted firms with half of the sample filing for chapter 11 (reorganization procedure) of the United States Bankruptcy Code for the period 2000–2012 and conducted logit regression analysis. We found that this model using three simple, few correlated and easily available financial ratios as explanatory variables shows a prediction accuracy of more than 80 percent. Besides the academic contribution to the research relative to the bankruptcy prediction, the empirical results of this study may be useful for practitioners, particularly for financial institutions interested in the probability of default of their partners.

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References

1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 1966Financial Ratios As Predictors of Failure 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 2001Forecasting Bankruptcy More Accurately: A Simple Hazard Model 2006Multi-period corporate default prediction with stochastic covariates 1990A neural network model for bankruptcy prediction 1972An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction

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2019A combined approach based on robust PCA to improve bankruptcy forecasting 2019ANALYZING INDUSTRY‐LEVEL VULNERABILITY BY PREDICTING FINANCIAL BANKRUPTCY 2021La défaillance des PME : quelles particularités dans le contexte camerounais ?

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