The Predictiveness of Bankruptcy Models: Methodological Problems and Evidence

John W. Pacey and Toan M. Pham
Additional contact information
John W. Pacey: Bank of America Australia Limited.
Toan M. Pham: School of Banking and Finance, University of New South Wales, Kensington.

Australian Journal of Management, 1990, vol. 15, issue 2, 315-337

Abstract: This paper addresses three methodological problems in previous studies of bankruptcy models using MDA and logit/probit techniques: (i) the use of choice-based and equally distributed samples in model estimation and validation; (ii) the use of arbitrary cut-off probabilities; and, (Hi) the assumption of equal costs of errors in prediction tests. Corrected MDA and probit models are estimated for a sample of Australian companies from 1966 to 1986. In contrast to previous studies our results show that first, bankruptcy prediction models based upon publicly available financial statement infor Mation possess insignificant predictive power; and second, the variables chosen for such models are characterised by non-multivariate normality and heteroskedasticity.

Keywords: BANKRUPTCY PREDICTION; ACCOUNTING RATIOS; QUALITATIVE CHOICE; MODELS; CHOICE-BASED SAMPLING; PRIOR PROBABILITY; COSTS OF ERRORS (search for similar items in EconPapers)
Date: 1990
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/031289629001500206 (text/html)

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:sae:ausman:v:15:y:1990:i:2:p:315-337

DOI: 10.1177/031289629001500206

Access Statistics for this article

More articles in Australian Journal of Management from Australian School of Business
Bibliographic data for series maintained by SAGE Publications ().