Performance Measurement and the Prediction of Corporate Bankruptcy

Posted: 5 Jun 2015

See all articles by Hong Chen

Hong Chen

National University of Tainan

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: June 3, 2015

Abstract

This study develops a corporate bankruptcy classification model from a sample of 258 bankrupt and non-bankrupt companies, covering the period 1986-2008. Instead of depending on traditional ratios, it uses a simple exponential function-based algorithm to improve the stability of financial data. Improved stability of the financial data is developed for a bankruptcy performance-measurement model using a confirmatory factor analysis, which is then refined to a four variable, logit bankruptcy model that is sufficiently general to be applied to a wide cross-section of industrial sectors. The strength of this study lies not only in the high predictive power of the proposed logit model one year prior to bankruptcy, but also in the integrated methodology for predicting corporate bankruptcy.

Keywords: Bankruptcy prediction; Financial failure; Performance measurement; Logit models

JEL Classification: G01, G32, G33

Suggested Citation

Chen, Hong and Wirjanto, Tony S., Performance Measurement and the Prediction of Corporate Bankruptcy (June 3, 2015). Available at SSRN: https://ssrn.com/abstract=2614156

Hong Chen

National University of Tainan ( email )

No. 67號, Róngyù St
Tainan, Dong District 701
Taiwan

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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