The Quality of Bankruptcy Data and its Impact on the Evaluation of Prediction Models: Creating and Testing a German Database

40 Pages Posted: 13 Aug 2018 Last revised: 5 Nov 2018

See all articles by Martin Huettemann

Martin Huettemann

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences

Tobias Lorsbach

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences

Date Written: November 2018

Abstract

This study assesses the impact of the quality of bankruptcy data on the estimation and evaluation of bankruptcy prediction models. To meet this objective, we develop a systematic methodology to obtain bankruptcy information from corporate news releases and public sources. Then, applying this methodology to the German market, we create a bankruptcy database that includes a higher number of and more accurate bankruptcy events as well as more accurate bankruptcy dates than those in the frequently used databases of Bureau van Dijk and Compustat Global. We use our bankruptcy data to conduct two empirical analyses. First, using our more accurate database, we compare the performance of several bankruptcy prediction models in the context of Germany. Second, we compare our database with Bureau van Dijk data and find that the quality of bankruptcy data significantly affects the parameter estimates and the out-of-sample evaluation of bankruptcy prediction models. Therefore, we suggest revising evidence presented by bankruptcy studies that use inaccurate bankruptcy information.

Keywords: Data Quality, Data Assessment, Bankruptcy Events, Prediction, German Public Firms

JEL Classification: C81, G17, G33, M41

Suggested Citation

Huettemann, Martin and Lorsbach, Tobias, The Quality of Bankruptcy Data and its Impact on the Evaluation of Prediction Models: Creating and Testing a German Database (November 2018). Available at SSRN: https://ssrn.com/abstract=3219239 or http://dx.doi.org/10.2139/ssrn.3219239

Martin Huettemann (Contact Author)

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences ( email )

Albertus-Magnus-Platz
Cologne, 50931
Germany

Tobias Lorsbach

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences ( email )

Albertus-Magnus-Platz
Cologne, 50931
Germany

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