Corporate Failure Prediction:Combination of logit model and Merton model
Date Issued
2005
Date
2005
Author(s)
Chen, Chia-Ling
DOI
en-US
Abstract
Due to the decreasing transparency of the financial reports, traditional logit models, usually employing accounting numbers as predicting variables, are facing questions of their effectiveness. However, the market value based corporate credit model, such as Merton type models, are also encountering problems of market inefficiency and inappropriate assumptions of value distribution. The purpose of this study is, therefore, to improve traditional failure prediction models by proposing an integrated model that incorporates both accounting and market credit information. We introduce the variable, Expected Default Frequency (EDF) generated from Merton model, as a predicting variable into traditional logit model. The empirical results show that Expected Default Frequency variable is not only significant in the model but also have higher failure predictive power than the traditional model.
Subjects
危機預測
財務危機
Merton模型
logit模型
failure prediction
financial distress
Merton model
logit model
Type
thesis
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