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Bankruptcy Prediction: Static Logit Model versus Discrete Hazard Models Incorporating Macroeconomic Dependencies

Schmidt, Henning LU and Duda, Matej LU (2010) NEKM07 20101
Department of Economics
Abstract
The purpose of this master thesis is to (i) compare the out-of-sample prediction power of one static logit model and two hazard models, (ii) explore whether incorporating macroeconomic patterns improves forecasting results, and (iii) examine the determinants of corporate failures from the pool of accounting and market driven variables.
We perform our study on 102 US listed manufacturing firms that defaulted between 2000 and 2009. The out-of-sample period spans over the crisis period 2007-2009.
We find that the static logit outperforms both hazard model specifications in out-of-sample accuracy. Next, we find that incorporating macroeconomic patterns can improve forecasting results of hazard models. The most important firm-specific... (More)
The purpose of this master thesis is to (i) compare the out-of-sample prediction power of one static logit model and two hazard models, (ii) explore whether incorporating macroeconomic patterns improves forecasting results, and (iii) examine the determinants of corporate failures from the pool of accounting and market driven variables.
We perform our study on 102 US listed manufacturing firms that defaulted between 2000 and 2009. The out-of-sample period spans over the crisis period 2007-2009.
We find that the static logit outperforms both hazard model specifications in out-of-sample accuracy. Next, we find that incorporating macroeconomic patterns can improve forecasting results of hazard models. The most important firm-specific determinants of bankruptcy are profitability, stock return, short-term solvency, further significant variables are cash holdings, relative market size, and leverage. (Less)
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author
Schmidt, Henning LU and Duda, Matej LU
supervisor
organization
course
NEKM07 20101
year
type
H2 - Master's Degree (Two Years)
subject
keywords
bankruptcy prediction, discrete-time hazard model, static logit, multi-period logit, macro dependent baseline function
language
English
id
1614029
date added to LUP
2010-06-17 11:03:44
date last changed
2010-06-17 11:03:44
@misc{1614029,
  abstract     = {The purpose of this master thesis is to (i) compare the out-of-sample prediction power of one static logit model and two hazard models, (ii) explore whether incorporating macroeconomic patterns improves forecasting results, and (iii) examine the determinants of corporate failures from the pool of accounting and market driven variables.
We perform our study on 102 US listed manufacturing firms that defaulted between 2000 and 2009. The out-of-sample period spans over the crisis period 2007-2009.
We find that the static logit outperforms both hazard model specifications in out-of-sample accuracy. Next, we find that incorporating macroeconomic patterns can improve forecasting results of hazard models. The most important firm-specific determinants of bankruptcy are profitability, stock return, short-term solvency, further significant variables are cash holdings, relative market size, and leverage.},
  author       = {Schmidt, Henning and Duda, Matej},
  keyword      = {bankruptcy prediction,discrete-time hazard model,static logit,multi-period logit,macro dependent baseline function},
  language     = {eng},
  note         = {Student Paper},
  title        = {Bankruptcy Prediction: Static Logit Model versus Discrete Hazard Models Incorporating Macroeconomic Dependencies},
  year         = {2010},
}