Bankruptcy Prediction: Theoretical Framework Proposal

Author(s)

Thian Cheng Lim , Lim Xiu Yun , Jessica , Siwei Gan , Haozhe Jiang ,

Download Full PDF Pages: 69 -74 | Views: 365 | Downloads: 107 | DOI: 10.5281/zenodo.3386762

Volume 1 - September 2012 (09)

Abstract

Bankruptcy prediction studies lack a strong theoretical framework but were driven by empirical testing and exploration of new econometric models to identify potential bankrupt firms. This paper examines this phenomenon by reviewing existing literatures and proposed a theoretical framework to govern the direction and future development of this area of finance. Liquidity, Profitability and Wealth Theory, Cash Flow Theory, Merton Model, &Gambler’s Ruin Theory were investigated. Liquidity, Profitability and Wealth theory was discovered to be most popular.

Keywords

Bankruptcy prediction, theoretical framework, Merton Model, Gambler’s Ruin

References

                   i.            Altman, E. 1968. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance 23(4): 589-609.

       ii.            ----. 1973. Predicting railroad bankruptcies in America. Bell Journal of Economics and

      iii.            Management Science 4(1): 184-21l.

     iv.            ----. 1984. The success of business failure prediction models. Journal of Banking and

       v.            Finance 8: 171-198.

     vi.            ----. 2002. Bankruptcy, Credit Risk and High Yield Junk Bonds. New York, NY:

    vii.            Blackwell Publishers.

  viii.            ---- and M. Levallee. 1980. Business failure classification in Canada. Journal of Business

     ix.            Administration 12(1): 147-164.

       x.            ---- and B. Loris. 1976. A financial early warning system for over-the-counter broker dealers.

     xi.            Journal of Finance 31(4): 1201-1217.

    xii.            ----, R. Haldeman and P. Narayanan. 1977. Zeta analysis: A new model to identify bankruptcy risk of corporations. Journal of Banking and Finance 1 (1): 29-51.

  xiii.            Beaver, W. 1966. Financial ratios as predictors of failure. Journal of Accounting Research 5: 71-111.

  xiv.            Brabazon A. and O'Neill M. 2004, Diagnosing Corporate Stability Using Grammatical Evolution. International Journal of Applied Mathematics and Computer Science.

   xv.            Chudson, W. 1945. The Pattern of Corporate Financial Structure. New York: National. Bureau of Economic Research.

  xvi.            Dimitras, A. S. Zanakis and C. Zopounidis. 1996. A survey of business failures with an emphasis on prediction methods and industrial applications. European Journal of

xvii.            Operational Research 90: 487-513.

xviii.            Dubins, L. and Savage. L.J. 1965. How to Gamble if You Must : Inequalities for Stochastic Processes. New York McGraw Hill.

  xix.            FitzPatrick, P. 1932. A comparison of ratios of successful industrial enterprises with those of failed companies. The Certified Public Accountant (October, November,

   xx.            December): 598-605, 656-662, and 727-731, respectively.

  xxi.            Franco, M and H, Miller. 1958 The cost of capital, corporation finance and the theory of investment. The American Economic Review Vol. 48, No. 3: 261-297

xxii.            Hashi, I. 1997. The Economics of Bankruptcy, Reorganization, and Liquidation: Lessons for East European Transition Economies. Russian and East European Finance and Trade Vol. 33, No. 4: 6-34.

xxiii.            Ivan O. Kitov, 2010. Modelling Share Prices of Banks and Bankrupts. Theoretical and Practical Research in Economic Fields, Association for Sustainable Education, Research and Science, vol. 0(1): 59-85.

xxiv.            Jones, F. 1987. Current techniques in bankruptcy prediction. Journal of Accounting

xxv.            Literature 6: 131-164.

xxvi.            Karels, G. and A. Prakash. 1987. Multivariate normality and forecasting of business bankruptcy. Journal of Business Finance & Accounting 14(4): 573-593.

xxvii.            Lifschutz, S and Jacobi, A. 2010. The Predictive Ability of the Altman Model:

xxviii.            Empirical Study of Publicly -Traded  Companies in Israel in 2000-2007.

xxix.            International Journal of Business and Management, vol. 5, no. 4 (accepted).

xxx.            Merton, RC. 1973 Theory of Rational Option Pricing. The Bell Journal of Economics and Management Science. Vol. 4, No. 1: 141-183.

xxxi.            National Academy of Sciences, 1999 http://www.nap.edu/openbook.php?record_i d=6024&page=1

xxxii.            Ohlson, J. 1980. Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research 18(1): 109- 131.

xxxiii.            Scott J.T 1981. The probability of bankruptcy: a comparison of empirical predictions and theoretical models. Journal of Banking and Finance. 5.

xxxiv.            Smith, R. and A. Winakor. 1935. Changes in Financial Structure of Unsuccessful Industrial Corporations. Bureau of Business Research, Bulletin No. 51. Urbana:University of Illinois Press.

xxxv.            Wlcox J.W 1971, A gambler’s ruin prediction of business failure using accounting data. Sloan Management Review. 3. 1971. Essays on corporate bankruptcy. Ph.D. dissertation, State University of New York-Buffalo

xxxvi.            Zmijewski, M. 1984. Essays on corporate bankruptcy. Ph.D. dissertation, State University of New York-Buffalo.

Thian Cheng Lim , Bankruptcy Prediction: Theoretical Framework Proposal, International Journal of Management Sciences and Business Research 09(2012):69 -74 DOI: 10.5281/zenodo.3386762