Bankruptcy prediction using terminal failure processes

Philippe du Jardin ()

European Journal of Operational Research, 2015, vol. 242, issue 1, 286-303

Abstract: Traditional bankruptcy prediction models, designed using classification or regression techniques, achieve short-term performances (1 year) that are fairly good, but that often worsen when the prediction horizon exceeds 1 year. We show how to improve the performance of such models beyond 1 year using models that take into account the evolution of firm’s financial health over a short period of time. For this purpose, we design models that fit the underlying failure process of different groups of firms. Our results demonstrate that such models lead to better prediction accuracy at a 3-year horizon than that achieved with common models.

Keywords: Forecasting; Finance; Bankruptcy prediction; Failure processes (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:242:y:2015:i:1:p:286-303

DOI: 10.1016/j.ejor.2014.09.059

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