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Strategies & Market Trends : Bankruptcy Predictor Model

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To: Razorbak who wrote ()	3/21/1999 6:23:00 PM
From: Greg Jung	Read Replies (1) of 477

I'm trying to understand the methods for these bankruptcy models. Here's a comparative study of predictor models troyst.edu The Altman research is (1968) Journal of Finance 23, 589-609. According to the table in the above-referenced article, data are based on a sample of 33, from period 1946-1968. The "accuracy rates" for one, two, or three years appear to be look-back success rates: one year prior to an established bankruptcy, the Z-score is below threshold 95% of time. The table indicates that the predictive accuracy is 73 %. These authors prefer the Ohlson method for modern times haas.berkeley.edu "Abstract. Empirical accounting researchers often use Altman's (1968) and Ohlson's (1980) bankruptcy prediction models as indicators of financial distress. While these models performed relatively well when they were estimated, we show that they do not perform as well in more recent periods (in particular, the 1980's), even when the coefficients are re-estimated. When we compare the performance of Ohlson's original model to our re-estimated version of his model and to that of Altman's original and re-estimated models, we find that Ohlson's original model displays the strongest overall performance. Given that Ohlson's original model is frequently used in academic research as an indicator of financial distress, its strong performance in this study supports its use as a preferred model." haas.berkeley.edu Ohlson: Tot. liab / Tot asset Working Cap./Tot assets Curr liab / cur assets Net income /tot assets oper funds/ tot liabilities Ohlson, J. A. 1980. "Financial Ratios and the Probabilistic Prediction of Bankruptcy." Journal of Accounting Research (Spring): 109-131.

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