With One Shot, Which Bullet Would You Use? Market versus Accounting Data in Bankruptcy Prediction - Part II (A Strong Case of Using Nonparametric MDA in Bankruptcy Prediction)

The International Journal of Finance, 26(3), 2015

42 Pages Posted: 3 Apr 2016

See all articles by Giovanni Fernandez

Giovanni Fernandez

Stetson University

Arun J. Prakash

Florida International University (FIU) - Department of Finance; Florida International University

Suchi Mishra

Florida International University (FIU) - Department of Finance

Date Written: April 1, 2016

Abstract

In this paper, we test the predictive power of a nonparametric multivariate discriminant model to predict corporate bankruptcy. In contrast with the previous literature, we employ not only accounting ratios, but also market and microstructure variables. The most important finding are that market variables alone are best at correctly classifying bankrupt firms, and that the nonparametric model is superior to the traditional, parametric models. This prevents the use of restrictive and unrealistic assumptions, while employing forward looking variables.

Suggested Citation

Fernandez, Giovanni and Prakash, Arun Jai and Mishra, Suchismita, With One Shot, Which Bullet Would You Use? Market versus Accounting Data in Bankruptcy Prediction - Part II (A Strong Case of Using Nonparametric MDA in Bankruptcy Prediction) (April 1, 2016). The International Journal of Finance, 26(3), 2015. Available at SSRN: https://ssrn.com/abstract=2757793

Giovanni Fernandez (Contact Author)

Stetson University ( email )

Gulfport, FL 33707
United States

Arun Jai Prakash

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Florida International University ( email )

Miami, FL 33199
United States

Suchismita Mishra

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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