Revisiting bankruptcy prediction: A review on the application of econometric methodologies in forecasting financial distress

• Main Authors: Alaba, Jean Nicole U., Damole, Glenn Lynard D., Libo-on, Franz Joel R., Salvame, Olvee Meriel O.
• Format: text
• Language: English
• Published: Animo Repository 2009
• Subjects: Bankruptcy > Philippines; Bankruptcy > Forecasting; Risk management"
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14450
• Institution: De La Salle University

Several studies have suggested their own methodologies of forecasting bankruptcy or financial distress, however, the researchers of this paper believe that significant concerns (e.g. functional form of the model, industry choice) have to be addressed beforehand in order to avoid committing the same mistakes (e.g. misspecification, biased sample) previous studies have done. Hence, studies relevant to the prediction of bankruptcy were analyzed and criticized, which ultimately resulted to the accumulation of the best practices when it comes to determining the probability that a firm will reach failure, may it be using discriminant analysis, logit or other statistical models. Although, such recommendations are not guaranteed to produce a flawless bankruptcy model, rather, these were formulated as aid in lessening and maximizing the predictive errors and ability, respectively, of the chosen model.