Corporate Failure: Definitions, Methods, and Failure Prediction Models

Jenifer Piesse (), Cheng-Few Lee (), Hsien-Chang Kuo and Lin Lin
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Jenifer Piesse: University of London
Cheng-Few Lee: Rutgers University
Hsien-Chang Kuo: National Chi-Nan University
Lin Lin: National Chi-Nan University

Chapter 23 in Encyclopedia of Finance, 2022, pp 773-790 from Springer

Abstract: Abstract The exposure of a number of serious financial frauds in high-performing listed companies during the past couple of years has motivated investors to move their funds to more reputable accounting firms and investment institutions. Clearly, bankruptcy, or corporate failure or insolvency, resulting in huge losses has made investors wary of the lack of transparency and the increased risk of financial loss. This chapter provides definitions of terms related to bankruptcy and describes common models of bankruptcy prediction that may allay the fears of investors and reduce uncertainty. In particular, it will show that a firm filing for corporate insolvency does not necessarily mean a failure to pay off its financial obligations when they mature. An appropriate risk-monitoring system, based on well-developed failure prediction models, is crucial to several parties in the investment community to ensure a sound financial future for clients and firms alike.

Keywords: Bankruptcy; Conditional Probability Analysis (CPA); Corporate failure; Discriminant Analysis (DA); Distress; Failure prediction; Hazard models; Liquidation; Misclassification cost models; Receivership (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-91231-4_23

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DOI: 10.1007/978-3-030-91231-4_23

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