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Assessing the time horizon of bankruptcy using financial ratios and the maturity schedule of long-term debt

Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.14/154934

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Title: Assessing the time horizon of bankruptcy using financial ratios and the maturity schedule of long-term debt
Related: Annual Meeting of the European Finance Association (32nd : 2005) (24 - 27 August 2005 : Moscow, Russia)
Related: Goetzmann, W. Proceedings of the European Finance Association 32nd Annual Meeting, p.1-39
Publisher: Belgium : European Financial Management Association
Date: 2005
FoR/RFCD Code(s): 150200 Banking, Finance and Investment
Author/Creator: Philosophov, Leonid V
Author/Creator: Batten, Jonathan
Author/Creator: Philosophov, Vladimir L
Description: This study investigates the multi-period prediction of firm bankruptcy as a multi-alternative problem of Statistical Decision Theory. This approach enables a simultaneous assessment to be made of the prediction of bankruptcy and the time horizon at which the bankruptcy could occur. To illustrate the approach, using U.S. bankruptcy data, a comparative statistical analysis of various financial variables is undertaken to identify four relatively independent financial ratios that have the potential for multi -period bankruptcy forecasting. These ratios characterize the quantity and quality of debt, as well as the firm's ability to repay the debt. The study also investigates a new type of predictive information - the maturity schedule of a firm's long-term debt. Bayesian-type forecasting rules are developed that jointly use the financial ratios and maturity schedule factors. The rules noticeably enhance bankruptcy prediction compared with the familiar one-period (two-alternative) Z-score rules of Altman (1968) for bankruptcy within the first one, two or three years. Predictive factors derived from schedule information additionally enhance bankruptcy prediction at distant time horizons.
Description: 39 page(s)
Subject Keyword: 150200 Banking, Finance and Investment
Subject Keyword: multi-period bankruptcy prediction
Subject Keyword: time to bankruptcy
Subject Keyword: schedule of paying off long-term debt
Subject Keyword: Bayesian decision rules
Subject Keyword: forecast efficiency
Resource Type: conference paper
Organisation: Macquarie University. Macquarie Graduate School of Management

Identifier: http://hdl.handle.net/1959.14/154934
Identifier: mq-rm-2005000403
Language: eng
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