Forecasting and preventing bankruptcy: A conceptual review

Abstract

The recent global financial crisis has caused the failure of many firms in several countries, renewing the interest of the literature towards forecasting models for default risk. Although these models have been developed since the 1960s, studies have been published in increased numbers during the last decades, proposing new approaches or comparing different existing models to understand which of them have the best predictive power. However, the recent financial crisis has underlined how important adopting early warning systems are. Although forecasting business failure and implementing warning systems are conceptually different, there is a risk of overlapping these concepts. Accordingly, this study aims to review the literature on these topics by using a conceptual review methodology, at the same time considering the trend to implement approaches aiming to facilitate corporate rescue. Key words: Forecasting models, early warning systems, corporate rescue, literature review.

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