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A comparative analysis of two-stage distress prediction models
YesOn feature selection, as one of the critical steps to develop a distress prediction model (DPM), a variety of expert systems and machine learning approaches have analytically supported developers. Data envel- opment analysis (DEA) has provided this support by estimating the novel feature of managerial efficiency, which has frequently been used in recent two-stage DPMs. As key contributions, this study extends the application of expert system in credit scoring and distress prediction through applying diverse DEA mod- els to compute corporate market efficiency in addition to the prevailing managerial efficiency, and to estimate the decomposed measure of mix efficiency and investigate its contribution compared to Pure Technical Efficiency and Scale Efficiency in the performance of DPMs. Further, this paper provides a com- prehensive comparison between two-stage DPMs through estimating a variety of DEA efficiency measures in the first stage and employing static and dynamic classifiers in the second stage. Based on experimen- tal results, guidelines are provided to help practitioners develop two-stage DPMs; to be more specific, guidelines are provided to assist with the choice of the proper DEA models to use in the first stage, and the choice of the best corporate efficiency measures and classifiers to use in the second stage
Design and performance evaluation of failure prediction models
Prediction of corporate bankruptcy (or distress) is one of the major activities in auditing
firmsâ risks and uncertainties. The design of reliable models to predict distress is crucial
for many decision-making processes. Although a variety of models have been designed to
predict distress, the relative performance evaluation of competing prediction models
remains an exercise that is unidimensional in nature. To be more specific, although some
studies use several performance criteria and their measures to assess the relative
performance of distress prediction models, the assessment exercise of competing
prediction models is restricted to their ranking by a single measure of a single criterion at
a time, which leads to reporting conflicting results. The first essay of this research
overcomes this methodological issue by proposing an orientation-free super-efficiency
Data Envelopment Analysis (DEA) model as a multi-criteria assessment framework.
Furthermore, the study performs an exhaustive comparative analysis of the most popular
bankruptcy modelling frameworks for UK data. Also, it addresses two important research
questions; namely, do some modelling frameworks perform better than others by design?
and to what extent the choice and/or the design of explanatory variables and their nature
affect the performance of modelling frameworks? Further, using different static and
dynamic statistical frameworks, this chapter proposes new Failure Prediction Models
(FPMs).
However, within a super-efficiency DEA framework, the reference benchmark changes
from one prediction model evaluation to another one, which in some contexts might be
viewed as âunfairâ benchmarking. The second essay overcomes this issue by proposing a
Slacks-Based Measure Context-Dependent DEA (SBM-CDEA) framework to evaluate
the competing Distress Prediction Models (DPMs). Moreover, it performs an exhaustive
comparative analysis of the most popular corporate distress prediction frameworks under
both a single criterion and multiple criteria using data of UK firms listed on London Stock
Exchange (LSE). Further, this chapter proposes new DPMs using different static and
dynamic statistical frameworks.
Another shortcoming of the existing studies on performance evaluation lies in the use of
static frameworks to compare the performance of DPMs. The third essay overcomes this
methodological issue by suggesting a dynamic multi-criteria performance assessment
framework, namely, Malmquist SBM-DEA, which by design, can monitor the
performance of competing prediction models over time. Further, this study proposes new
static and dynamic distress prediction models. Also, the study addresses several research
questions as follows; what is the effect of information on the performance of DPMs? How
the out-of-sample performance of dynamic DPMs compares to the out-of-sample
performance of static ones? What is the effect of the length of training sample on the
performance of static and dynamic models? Which models perform better in forecasting
distress during the years with Higher Distress Rate (HDR)?
On feature selection, studies have used different types of information including
accounting, market, macroeconomic variables and the management efficiency scores as
predictors. The recently applied techniques to take into account the management
efficiency of firms are two-stage models. The two-stage DPMs incorporate multiple inputs
and outputs to estimate the efficiency measure of a corporation relative to the most
efficient ones, in the first stage, and use the efficiency score as a predictor in the second
stage. The survey of the literature reveals that most of the existing studies failed to have a
comprehensive comparison between two-stage DPMs. Moreover, the choice of inputs and
outputs for DEA models that estimate the efficiency measures of a company has been
restricted to accounting variables and features of the company. The fourth essay adds to
the current literature of two-stage DPMs in several respects. First, the study proposes to
consider the decomposition of Slack-Based Measure (SBM) of efficiency into Pure
Technical Efficiency (PTE), Scale Efficiency (SE), and Mix Efficiency (ME), to analyse
how each of these measures individually contributes to developing distress prediction
models. Second, in addition to the conventional approach of using accounting variables
as inputs and outputs of DEA models to estimate the measure of management efficiency,
this study uses market information variables to calculate the measure of the market
efficiency of companies. Third, this research provides a comprehensive analysis of two-stage
DPMs through applying different DEA models at the first stage â e.g., input-oriented
vs. output oriented, radial vs. non-radial, static vs. dynamic, to compute the measures of
management efficiency and market efficiency of companies; and also using dynamic and
static classifier frameworks at the second stage to design new distress prediction models
Predicting financial distress:A comparison of survival analysis and decision tree techniques
AbstractFinancial distress and then the consequent failure of a business is usually an extremely costly and disruptive event. Statistical financial distress prediction models attempt to predict whether a business will experience financial distress in the future. Discriminant analysis and logistic regression have been the most popular approaches, but there is also a large number of alternative cutting â edge data mining techniques that can be used. In this paper, a semi-parametric Cox survival analysis model and non-parametric CART decision trees have been applied to financial distress prediction and compared with each other as well as the most popular approaches. This analysis is done over a variety of cost ratios (Type I Error cost: Type II Error cost) and prediction intervals as these differ depending on the situation. The results show that decision trees and survival analysis models have good prediction accuracy that justifies their use and supports further investigation
THE ACCURACY OF FINANCIAL DISTRESS PREDICTION MODELS IN TURKEY: A COMPARATIVE INVESTIGATION WITH SIMPLE MODEL PROPOSALS
This study aims to test eight well-known and widely used financial distress prediction models and to compare their performance in Turkey for the first year prior to failure. The comparison is enriched with the details of four new and simple model proposals, namely Failure Score (F-Score) Models, developed using four statistical techniques. The results show that none of the existing models could achieve satisfactorily high correct- classification rates over 90 %. Ohlsonâs O-Score Model seems to be superior to other existing models and has the highest rate of correct classification, 81,6 %. However, our new model proposal based on logistic regression outperforms the O-Score model in terms of the overall accuracy t-value and may be viewed as an equally worthy model for predicting bankruptcy.Corporate failure, financial distress prediction, failure risk assessment, discriminant analysis, binary logistic regression, probit analysis, one-zero linear regression.
A Comparative Analysis Of The Effectiveness Of Three Solvency Management Models
The introduction of the Altmanâs Z-score model in 1983 and much recently the Enyiâs Relative
Solvency Ratio model in 2005 has divergently provided financial analysts with alternative
methods of analyzing corporate solvency which hitherto was exclusively done using the
traditional historical record based ratio analysis, with particular reference to the current ratio. To
test the relevance and effectiveness of the three models, real life performance data were extracted
from the annual reports of 7 quoted companies, analyzed using the three models and the results
compared to show the strengths and weaknesses of each. The result revealed that the current ratio
and the Z-score models suffer from many limitations including imprecision while the Relative
Solvency Ratio combines the capability of an effective indicator with the precision required of a
true predictor
Bankruptcy and the size effect
.Bankruptcy; Distress Risk; Financial Firms; Regime Shifts; Size Effect
The association of metacognitive beliefs with emotional distress after diagnosis of cancer.
Objective: Emotional distress after a diagnosis of cancer is normal and, for most people, will diminish over time. However, a significant minority of patients with cancer experience persistent or recurrent symptoms of emotional distress for which they need help. A model developed in mental health, the self-regulatory executive function model (S-REF), specifies that maladaptive metacognitive beliefs and processes, including persistent worry, are key to understanding why such emotional problems persist. This cross-sectional study explored, for the first, time whether metacognitive beliefs were associated with emotional distress in a cancer population, and whether this relationship was mediated by worry, as predicted by the S-REF model. Method: Two hundred twenty-nine participants within 3 months of diagnosis of, and before treatment for, primary breast or prostate cancer completed self-report questionnaires measuring anxiety, depression, posttraumatic stress disorder (PTSD) symptoms, metacognitive beliefs, worry, and illness perceptions. Results: Regression analysis showed that metacognitive beliefs were associated with symptoms of anxiety, depression, and PTSD, and explained additional variance in these outcomes after controlling for age, gender, and illness perceptions. Structural equation modeling was consistent with cross-sectional hypotheses derived from the theory that metacognitive beliefs cause and maintain distress both directly and indirectly by driving worry. Conclusions: The findings provide promising first evidence that the S-REF model may be usefully applied in cancer. Further study is required to establish the predictive and clinical utility of these findings
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