Confidence intervals for controlling the probability of bankruptcy

Ran Barniv, Abraham Mehrez and Douglas M. Kline

Omega, 2000, vol. 28, issue 5, 555-565

Abstract: This paper provides confidence intervals for the probability of bankruptcy through the control of financial accounting variables. Our analysis differs in several aspects from standard bankruptcy techniques studied in previous studies. This bankruptcy literature generally provides classification techniques, peruses classification accuracy, and produces point estimators of bankruptcy for each firm. Various measures concerned with the confidence intervals are studied to evaluate the risk involved in predicting the probability of bankruptcy; for example, their maximum and minimum lengths, and their maximum lower bound and minimum upper bounds. We show that local minimum and maximum lengths are global. The empirical results illustrate a substantial improvement (reduction) in the length and the minimum upper bound of the confidence intervals at the optimal level of the financial accounting variables, whereas the lengths at the industry averages were significantly lower. The results are robust for three, two, and one year prior to bankruptcy.

Keywords: Financial; accounting; ratios; Bankruptcy; Logit; modeling; Confidence; intervals; Optimal; ratios (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (3)

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