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2018 | OriginalPaper | Buchkapitel

Failure Models for Insolvency and Bankruptcy

verfasst von : Piotr Staszkiewicz, Bartosz Witkowski

Erschienen in: Contemporary Trends and Challenges in Finance

Verlag: Springer International Publishing

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Abstract

This working paper discusses the problem of mutual use the insolvency and bankruptcy variable for business failure modeling. The research shows how the terms bankruptcy and insolvency modeling on the unformal dataset might result in different fits of the models. Models were estimated based on 17,024 firm’s yearly observations from the 2004 to 2014 for the Polish financial market. Following priory research, the models were developed with application of the logit regression. The evidence gathered during the study supports the conclusion that the use of the legal definition of insolvency is a weak instrument for bankruptcy modeling.

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Vorheriges Kapitel Profitability of Serial Acquirers on the Polish Capital Market

Nächstes Kapitel Parental Influence on Financial Knowledge of University Students

Reassessment of standard errors based on negative hessian does not change the conclusions.

The bankruptcy model outperforms the insolvency model as regards the information criteria.

In most probit models with potential heteroscedasticity of the error term in the equation for the latent variable in the typical two-equation utility notation of the binary choice model, the homoscedasticity hypothesis was rejected on any significance level >0.0001, while the size of entities played a statistically significant role, and the pre/during/post-crisis dummies did not, thus they specification “probit_HR” is estimated without them.

Sample censoring was used due to extremely high dispersion of the KP/TA, NA/KAP and AK/ZB variables, which caused the problems with algorithm convergence while the model was estimated on full sample (visible in lines 1 and 3 in the table). The problem is typical while ratios are considered and consisted in eliminating form the sample the cases with bottom 1% and top 1% of cases with extreme values of the aforementioned variables. This reduces spurious effects caused by overinfluential extreme cases in the sample as well as eliminates strong collinearity of the independent variables caused by the co-behavior of the extreme cases.

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Titel: Failure Models for Insolvency and Bankruptcy
verfasst von: Piotr Staszkiewicz
Bartosz Witkowski
Verlag: Springer International Publishing
Buch: Contemporary Trends and Challenges in Finance
Print ISBN: 978-3-319-76227-2

Electronic ISBN: 978-3-319-76228-9

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-76228-9_21