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http://ssrn.com/abstract=1671685
 
 

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The Impact of Equity Misvaluation on Predictive Accuracy of Bankruptcy Models


George E. Batta


Claremont McKenna College - Robert Day School of Economics and Finance

Wan Wongsunwai


Northwestern University

May 2014

Journal of Fixed Income, Vol. 24, No. 2, 2014

Abstract:     
This paper examines the impact of equity misvaluation on the predictive accuracy of bankruptcy models. We find that structural bankruptcy prediction models are not affected by misvaluation. However, for hazard models, forecasting accuracy for properly-valued firms is greater than for misvalued firms and model forecasting accuracy improves significantly if model coefficients vary with misvaluation. Our results show the importance of taking stock market misvaluation into account when forecasting bankruptcies using hazard models.

Number of Pages in PDF File: 32

Keywords: bankruptcy prediction, market efficiency, accounting information relevance

JEL Classification: G33, G14, M41


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Date posted: September 5, 2010 ; Last revised: April 22, 2015

Suggested Citation

Batta, George E. and Wongsunwai, Wan, The Impact of Equity Misvaluation on Predictive Accuracy of Bankruptcy Models (May 2014). Journal of Fixed Income, Vol. 24, No. 2, 2014. Available at SSRN: http://ssrn.com/abstract=1671685 or http://dx.doi.org/10.2139/ssrn.1671685

Contact Information

George E. Batta
Claremont McKenna College - Robert Day School of Economics and Finance ( email )
500 E. Ninth Street
Claremont, CA 91711
United States
Wan Wongsunwai (Contact Author)
Northwestern University ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
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