Financial Ratios as Predictors of Failure: Evidence from ... - ERIM

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Ohlson, J. A., 1980, “Financial Ratios and the Probabilistic Prediction of Bankruptcy”, Journal of Accounting Research, Vol.18, No.1 Scott, J., 1981, “The probability of bankruptcy: A comparison of empirical predictions and theoretical models”, Journal of Banking and Finance 5, p317-344 Sharpe, W. F., 1964, “Capital asset prices: A theory of market equilibrium under conditions of risk”, Journal of Finance 19, p425-442 Sinkey, J., 1975, “A multivariate statistical analysis of the characteristics of problem banks”, Journal of Finance Studenmund, A. H., 2000, “Using Econometrics: A Practical Guide”, 4 th Edition, Addison Wesley Treynor, J. L., 1962, “Toward a Theory of Market Value of Risky Assets”, unpublished manuscript Westgaard, S., and N. Wijst, 2001, “Default probabilities in a corporate bank portfolio: A logistic model approach”, European Journal of Operational Research 135, p338-349 Zeitun, R., G. Tian, and S. Keen, 2007, “Default Probability for the Jordanian Companies: A Test of Cash Flow Theory”, International Research Journal of Finance and Economics 8 33
MDA Appendix One Table 1 Literature Summary Author Year Ratios Beaver 1966 Altman 1968 Deakin 1972 Sinkey 1975 Altman et al 1977 cash flow/total assets, net income/total assets, total debt/total assets, and cash flow/total debt working capital/total assets, retained earnings/total assets, earning before interest and taxes/total assets, market value equity/book value of total debt, and sales/total assets Working capital/Total assets, current assets/current liabilities, total debt/total assets, quick assets/sales, quick assets/total assets, cash/total assets, cash/sales, current assets/total assets, cash/current liabilities, net income/total assets, current assets/sales, cash flow/total debt Other expenses as % of revenue, loans as % of revenue, operating expense/operating income, loans/(capital + reserve), state and local obligations as % of revenue, (cash + U.S. treasury securities)/total assets, loans/total assets, provision for loan losses/operating expense, U.S. treasury securities as % of revenue, interest paid on deposits as % in revenue Return on assets, stability of earnings (measured by a normalized measure of the standard error of estimate around a ten-year trend, debt service (measured by the familiar interest coverage ratio, cumulative profitability (measured by the firm’s retained earnings), liquidity, capitalization, size 34
Page 1 and 2: 17 Nov 2008 Financial Ratios as Pre
Page 3 and 4: Abstract This paper presents some e
Page 5 and 6: 1. Introduction One year after the
Page 7 and 8: However he did not find substantial
Page 9 and 10: interest in predicting bankruptcy b
Page 11 and 12: atios he employed in the research w
Page 13 and 14: there are specific statistical requ
Page 15 and 16: “returns”, “values” and “
Page 17 and 18: Table 2 Explanatory Variables Varia
Page 19 and 20: which results in high standard erro
Page 21 and 22: Table 7 Variables in the Equation (
Page 23 and 24: Summary. -2 log likelihood (-2LL) i
Page 25 and 26: predicted to be default, it is call
Page 27 and 28: estimation procedure. However it is
Page 29 and 30: Ohlson (1980)). In the second sampl
Page 31 and 32: Reference Altman, E. I., 1968, “F
Page 33: Hong Kong Society of Accountants, 1
Page 37 and 38: Appendix Two Table 4 Descriptive St
Page 39 and 40: Appendix Four Table 9 Coefficients
Page 41 and 42: Appendix Six Table 10 Coefficients
Page 43 and 44: Appendix Eight Table 12 Classificat

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