The Role of Corporate Governance and Estimation Methods in Predicting Bankruptcy

Nawaf Almaskati (), Ron Bird, Yue Lu () and Danny Leung ()
Additional contact information
Nawaf Almaskati: University of Waikato
Yue Lu: University of Waikato
Danny Leung: University of Technology Sydney
Authors registered in the RePEc Author Service: Danny Yeung ()

Working Papers in Economics from University of Waikato

Abstract: In a sample covering bankruptcies in public US firms in the period 2000 to 2015, we find that the addition of governance variables significantly improves the classification power and prediction accuracy of various bankruptcy prediction models. We also find that while adding governance variables improves the performance of bankruptcy prediction models, the additional explanatory power provided by adding the governance measures improves the further we are from bankruptcy, which implies that governance variables tend to provide earlier and more accurate warnings of the firm’s bankruptcy potential. Our analysis of five commonly used statistical methods in the literature showed that regardless of the bankruptcy model used, hazard analysis provides the best classification and out-of-sample forecast accuracy among the parametric methods. Nevertheless, non-parametric methods such as neural networks or data envelopment analysis appear to provide better classification accuracy regardless of the model selected.

Keywords: corporate governance; bankruptcy studies; default prediction; non-parametric methods (search for similar items in EconPapers)
JEL-codes: D81 G10 G14 G30 G32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-07-31
New Economics Papers: this item is included in nep-big, nep-cfn, nep-cmp and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.its.waikato.ac.nz/wai/econwp/1916.pdf (application/pdf)

Related works:
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:wai:econwp:19/16

Access Statistics for this paper

More papers in Working Papers in Economics from University of Waikato Private Bag 3105, Hamilton, New Zealand, 3240. Contact information at EDIRC.
Bibliographic data for series maintained by Geua Boe-Gibson ().