The recurrence of financial distress: A survival analysis

Fanyin Zhou, Lijun Fu, Zhiyong Li and Jiawei Xu

International Journal of Forecasting, 2022, vol. 38, issue 3, 1100-1115

Abstract: Companies often suffer periods of financial distress before filing for bankruptcy. Unlike one-off bankruptcies, financial distress can occur repeatedly within the same individual firm. This paper is focused on the recurrence of financial distress and studies the Chinese stock market, where Special Treatment – an official indicator of financial distress – can be repeatedly applied to a listed company. We employ a stratified hazard model to predict the probability of subsequent distress with variables, including duration dependency, event-based factors, institutional variables, financial ratios, market-based variables and macroeconomic conditions. Our empirical results show that accounting and market-based variables have limited power in predicting the recurrence of distress, whereas the duration of recovery, restructuring events and their interaction terms with the accounting and macroeconomic factors affect the recurrent risk significantly. Tested on out-of-time samples, our proposed hazard models show a robust performance in the prediction of recurrent risk over time.

Keywords: Recurrence of financial distress; Special treatment; Survival analysis; Stratified hazard model; Recurrent event prediction (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:38:y:2022:i:3:p:1100-1115

DOI: 10.1016/j.ijforecast.2021.12.005

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