Predicting US banks bankruptcy: logit versus Canonical Discriminant analysis

Zeineb Affes () and Rania Hentati-Kaffel ()
Additional contact information
Zeineb Affes: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr
Rania Hentati-Kaffel: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr
Authors registered in the RePEc Author Service: Rania HENTATI-KAFFEL

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Using a large panel of US banks over the period 2008-2013, this paper proposes an early-warning framework to identify bank leading to bankruptcy. We conduct a comparative analysis based on both Canonical Discriminant Analysis and Logit models to examine and to determine the most accurate of these models. Moreover, we analyze and improve suitability of models by comparing different optimal cut-off score (ROC curve vs theoretical value). The main conclusions are: i) Results vary with cut-off value of score, ii) the logistic regression using 0.5 as critical cut-off value outperforms DA model with an average of correct classification equal to 96.22%. However, it produces the highest error type 1 rate 42.67%, iii) ROC curve validation improves the quality of the model by minimizing the error of misclassification of bankrupt banks: only 4.42% in average and exhibiting 0% in both 2012 and 2013. Also, it emphasizes better prediction of failure of banks because it delivers in mean the highest error type II 8.43%

Keywords: Bankruptcy prediction; Canonical Discriminant Analysis; Logistic regression; CAMELS; ROC curve; Early-warning system (search for similar items in EconPapers)
JEL-codes: C25 C38 C53 G21 G33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02
New Economics Papers: this item is included in nep-ban, nep-dcm and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
ftp://mse.univ-paris1.fr/pub/mse/CES2016/16016.pdf (application/pdf)

Related works:
Working Paper: Predicting US banks bankruptcy: logit versus Canonical Discriminant analysis (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:16016

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().