Final DQ Week 7 Predicting Corporate Bankruptcy (1).docx

Other ways are using constructive models by looking

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firm failure. Other ways are using constructive models by looking at the causes of failure of firms, the qualitative explanations of bankruptcy. Both strands of research have resulted into
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PREDICTING CORPORATE BANKRUPTCY 4 many prediction methods and models. Almost all models will aim to predict corporate bankruptcy. The only exceptions are the models constructed in the era before late 1960s, which did the predicting in a different manner (Aziz,1988). Some other models to help predict corporate bankruptcy include the statistical models which the latter dominates and uses multiple discriminant, linear probability, logit, and profit models. Univariate analysis Univariate analysis is a traditional method of interpreting financial statements using firms’ financial ratios. These ratios serve as explanatory variables or the bankruptcy predictors, which are likely to exhibit significant differences across the failing and non-failing firms. There is no allowance for an analysis capturing an integrated effect of any two or more variables 6 together on financial health of the firm. MDA is used to classify an observation of a firm into several groupings, that include the bankrupt and non-bankrupt, depending upon the firm’s individual issues (Miller, 2009). Bankruptcy being more average in public firms and somewhat easy outlet to the require data, modeling of public limited companies. Corporate bankruptcy is certainly not attractive and an early detection of forthcoming distress in a corporation is always an advantage. Foreseeing of financially distress firms can take corrective measures that better their protection under any bankruptcy law. Realizing this prediction of corporate bankruptcy, a wide variety of models have been developed and to be helpful tools to correct these issues. These methods and models are based on statistical techniques, artificial intelligence, or theoretic arguments. Despite the availability of these prediction models, there still isn’t one that is a best distress prediction model, that is still a work in progress.
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PREDICTING CORPORATE BANKRUPTCY 5
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