More than a dummy: The probability of failure, survival and acquisition of firms in financial distress

Åstebro, Thomas und Winter, Joachim (2012): More than a dummy: The probability of failure, survival and acquisition of firms in financial distress. In: European Management Review, Vol. 9, No. 1: pp. 1-17

Abstract

We discuss three methodological issues concerning forecasts of the outcome of financial distress. First, we argue that rather than using a binary model the outcome of financial distress should be modeled using a multinomial specification that distinguishes between failure, survival as going concern, and acquisition. We also argue for a random rather than matched-pair sampling technique to better reflect decision making reality. Finally, we investigate the value of using industry-mean adjusted regressors. We find that the binary bankruptcy model is mis-specified relative to the multinomial model, that the matched sampling technique overstates model accuracy and that industry specific intercepts have better explanatory power than industry-adjusted regressors.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Chair of Empirical Economics
• Subjects: 300 Social sciences > 330 Economics
• Language: English