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JOURNAL OF ACCOUNTING AND FINANCE
Predicting Bankruptcy with Correlated Credit Components
Author(s): Dror Parnes
Citation: Dror Parnes, (2012) "Predicting Bankruptcy with Correlated Credit Components," Journal of Accounting and Finance, Vol. 12, Iss. 4, pp. 11 - 29
Article Type: Research paper
Publisher: North American Business Press
Abstract:
In this study we suggest an original non-linear corporate credit risk model that accounts for the complete distributional properties of common observed risk modules and their corresponding estimated default threshold values. The proposed model predicts corporate bankruptcies based on the consequential interrelationships within these credit components. We illustrate the theory over a large sample of observations and further authenticate its added value when predicting business failures. Despite the relatively higher complexity involved, compared to linear credit scores or scorecards, the present scheme can serve financial institutions and other lenders to make superior lending decisions and achieve higher overall profitability.
