Bankruptcy Prediction with Financial Systemic Risk

26 Pages Posted: 23 Jul 2019

See all articles by Zhehao Jia

Zhehao Jia

University of Glasgow

Yukun Shi

University of Glasgow; University of Leicester

Cheng Yan

University of Essex - Essex Business School

Meryem Duygun

Nottingham University Business School

Date Written: July 20, 2019

Abstract

Financial systemic risk – defined as the risk of collapse of an entire financial system vis-à-vis any one individual financial institution – is making inroads into academic research in the aftermath of the late 2000s Global Financial Crisis. We shed light on this new concept by investigating the value of various systemic financial risk measures in the corporate failure predictions of listed nonfinancial firms. Our sample includes 225,813 firm-quarter observations covering 8,604 US firms from 2000 Q1 to 2016 Q4. We find that financial systemic risk is incrementally useful in forecasting corporate failure over and above the predictions of the traditional accounting-based and market-based factors. Our results are stronger when the firm in consideration has higher equity volatility relative to financial sector volatility, the smaller size relative to the market, and more debts in current liabilities. The combined evidence suggests that systemic risk is a useful supplementary source of information in capital markets.

Keywords: Bankruptcy prediction; Systemic risk; Hazard model

JEL Classification: G33; G32; C35; G10

Suggested Citation

Jia, Zhehao and Shi, Yukun and Yan, Cheng and Duygun, Meryem, Bankruptcy Prediction with Financial Systemic Risk (July 20, 2019). Available at SSRN: https://ssrn.com/abstract=3423321 or http://dx.doi.org/10.2139/ssrn.3423321

Zhehao Jia (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Yukun Shi

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

University of Leicester ( email )

University Road
Leicester, LE1 7RH
United Kingdom

Cheng Yan

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Meryem Duygun

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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