Are Failure Prediction Models Widely Usable? An Empirical Study Using a Belgian Dataset

44 Pages Posted: 26 Jun 2015

See all articles by Hubert Ooghe

Hubert Ooghe

Vlerick Business School; Ghent University - Department of Accountancy and Corporate Finance

Sofie Balcaen

Ghent University - Department of Accountancy and Corporate Finance

Date Written: June 26, 2015

Abstract

Faced with the question as to whether failure prediction models can easily be transferred and applied to a new data setting, this study examines the performance of seven models on a dataset of Belgian company failures after re-estimation of the coefficients. The validation results indicate that some models are widely usable: they are strongly predictive when applied to the new data set. The Gloubos-Grammatikos models and Keasey-McGuinness appear among the best performing models, and also Ooghe-Joos-De Vos and Zavgren seem to be widely usable, respectively for failure prediction 1 and 3 years prior to failure. At the same time, the Altman and Bilderbeek models show very poor results when applied to the Belgian dataset.

Keywords: failure prediction model; international comparison; validation; annual accounts; re-estimation

JEL Classification: G33, M49

Suggested Citation

Ooghe, Hubert and Balcaen, Sofie C. F., Are Failure Prediction Models Widely Usable? An Empirical Study Using a Belgian Dataset (June 26, 2015). Multinational Finance Journal, Vol. 11, No. 1/2, p. 33-76, 2007, Available at SSRN: https://ssrn.com/abstract=2623512

Hubert Ooghe (Contact Author)

Vlerick Business School ( email )

Reep 1
B-9000 Gent
Belgium

Ghent University - Department of Accountancy and Corporate Finance

Kuiperskaai 55 E
B-9000 Ghent
Belgium

Sofie C. F. Balcaen

Ghent University - Department of Accountancy and Corporate Finance ( email )

Bedrijfsfinanciering (RUG)
Kuiperskaai 55 E
Ghent, B-9000
Belgium

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