Logit Regression Based Bankruptcy Prediction of Korean Firms

30 Pages Posted: 23 Apr 2014

See all articles by Chulwoo Han

Chulwoo Han

Sungkyunkwan University

Hyeongmook Kang

Korea Advanced Institute of Science and Technology (KAIST)

Ga Min Kim

Mizuho Financial Group

Joseph Yi

Capital Markets & Portfolio Research, Inc.

Date Written: May 27, 2011

Abstract

In this article, we develop a bankruptcy prediction model for Korean firms that utilize logit regression. We find that not only financial accounting ratios but equity market inputs and macro-economic variables are also important predictors of bankruptcy. However, unlike the findings in Campbell et al. (2008), using market value of equity in computing total assets did not improve the model. We compare the model with a Merton type structural model and find that our model demonstrates a higher prediction power in distinguishing distressed firms from healthy firms. Though our model proves to perform better, we are careful to make a conclusion and rather suggest to use several models for the purpose of risk management to reduce model risk.

Suggested Citation

Han, Chulwoo and Kang, Hyeongmook and Kim, Ga Min and Yi, Joseph, Logit Regression Based Bankruptcy Prediction of Korean Firms (May 27, 2011). Available at SSRN: https://ssrn.com/abstract=2427506 or http://dx.doi.org/10.2139/ssrn.2427506

Chulwoo Han (Contact Author)

Sungkyunkwan University ( email )

25-2, Sungkyunkwan-ro
Jongno-gu
Seoul, 03063

Hyeongmook Kang

Korea Advanced Institute of Science and Technology (KAIST) ( email )

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

Ga Min Kim

Mizuho Financial Group ( email )

1-1-1 Marunouchi, Chiyoda-ku
Tokyo 100-0004
Japan

Joseph Yi

Capital Markets & Portfolio Research, Inc. ( email )

Kwanak-Ku Shinlim-Dong San 56-1
Building 36-310
Seoul, 151-742
Korea

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