Comparing the performance of market-based and accounting-based bankruptcy prediction models |
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Authors: | Vineet Agarwal Richard Taffler |
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Institution: | 1. Cranfield School of Management, Cranfield, Bedford MK43 0AL, UK;2. Martin Currie Professor of Finance and Investment, The Management School, University of Edinburgh, 50 George Square, Edinburgh EH8 9JY, UK |
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Abstract: | Recently developed corporate bankruptcy prediction models adopt a contingent claims valuation approach. However, despite their theoretical appeal, tests of their performance compared with traditional simple accounting-ratio-based approaches are limited in the literature. We find the two approaches capture different aspects of bankruptcy risk, and while there is little difference in their predictive ability in the UK, the z-score approach leads to significantly greater bank profitability in conditions of differential decision error costs and competitive pricing regime. |
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Keywords: | C52 G13 G33 M41 |
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