Logit Regression Based Bankruptcy Prediction of Korean Firms

In this article, we develop a bankruptcy prediction model for Korean firms that utilize logit regression. We find that not only financial accounting ratios but equity market inputs and macro-economic variables are also important predictors of bankruptcy. However, unlike the findings of Campbell et a...

Full description

Saved in:
Bibliographic Details
Published in:Asia-Pacific journal of risk and insurance 2012-12, Vol.7 (1)
Main Authors: Han, Chulwoo, Kang, Hyeongmook, Kim, Gamin, Yi, Joseph
Format: Article
Language:English
Subjects:
Accounting
Bankruptcy
Credit risk
Discriminant analysis
Economic crisis
Equity
Standard scores
Survival analysis
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In this article, we develop a bankruptcy prediction model for Korean firms that utilize logit regression. We find that not only financial accounting ratios but equity market inputs and macro-economic variables are also important predictors of bankruptcy. However, unlike the findings of Campbell et al. (2008), using market value of equity in computing total assets did not improve the model. We compare the model with a Merton-type structural model and find that our model demonstrates a higher prediction power in distinguishing distressed firms from healthy firms. Though our model proves to perform better, we are careful to make a conclusion and rather suggest using several models for the purpose of risk management to reduce model risk.
ISSN:2153-3792
1793-2157
2153-3792
DOI:10.1515/2153-3792.1159