Performance Measurement and the Prediction of Corporate Bankruptcy
Posted: 5 Jun 2015
Date Written: June 3, 2015
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: Suggested Citation