Predicting the event and time horizon of bankruptcy using financial ratios and the maturity schedule of long-term debt | Macquarie University ResearchOnline

Home

List Of Titles

Predicting the event and 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/1959.14/185541

3 Visitors

4 Hits

0 Downloads

Title: Predicting the event and time horizon of bankruptcy using financial ratios and the maturity schedule of long-term debt
Related: Mathematics and financial economics, Vol. 1, No. 3-4, (2008), p.181-212
DOI: 10.1007/s11579-007-0008-9
Publisher: Springer
Date: 2008
FoR/RFCD Code(s): 140200 Applied Economics 010200 Applied Mathematics
Author/Creator: Philosophov, Leonid V
Author/Creator: Batten, Jonathan A
Author/Creator: Philosophov, Vladimir L
Description: We study the problem of simultaneous and coherent assessment the probability of a firm's bankruptcy at various time horizons in future. In contrast with usual (one-period) formulations of the problem, such multi-period formulation better matches the nature of bankruptcy process (bankruptcy occurs in time) and allows an easier and more natural incorporation of bankruptcy (default) prognoses in valuation of risky debt and equity, optimization of corporate capital structure etc. The study uses a new mathematical apparatus—multi-alternative decision rules of statistical decision theory. We investigate a new type of predictive variables that can be extracted from the maturity schedule of a firm's long-term debt. The study develops Bayesian-type forecasting rules that use both maturity schedule factors and traditional financial ratios. These rules noticeably enhance bankruptcy prediction (compared with the familiar one-period Z-score rules of Altman) for bankruptcy within the first 1, 2 or 3 years. Predictive factors derived from schedule information enhance bankruptcy prediction at distant time horizons.
Description: 32 page(s)
Subject Keyword: 140200 Applied Economics
Subject Keyword: 010200 Applied Mathematics
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: journal article
Organisation: Macquarie University. Macquarie Graduate School of Management

Identifier: http://hdl.handle.net/1959.14/185541
Identifier: ISSN:1862-9679
Identifier: mq-rm-2007008347
Language: eng
Reviewed

Macquarie University ResearchOnline

Search

Browse

Highlights

Resources