With One Shot, Which Bullet Would You Use? Market versus Accounting Data in Bankruptcy Prediction Part I (The Univariate Case)
The International Journal of Finance, 26(2), 2014
45 Pages Posted: 3 Apr 2016
Date Written: June 1, 2012
In this paper, we investigate the univariate behavior of variables prior to bankruptcy. In contrast with the previous literature, we study not only the behavior of accounting ratios, but also that of market and microstructure variables. The most important finding is that market and microstructure variables are best at correctly classifying bankrupt firms. The best predictors are price, standard deviation, and bid-ask spread. Accounting ratios still play an important role; ratios that include net income, current liabilities, and working capital perform much better in tests to distinguish between bankrupt and nonbankrupt firms than do other ratios.
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