9,200 research outputs found
Bankruptcy Prediction of Small and Medium Enterprises Using a Flexible Binary Generalized Extreme Value Model
We introduce a binary regression accounting-based model for bankruptcy
prediction of small and medium enterprises (SMEs). The main advantage of the
model lies in its predictive performance in identifying defaulted SMEs. Another
advantage, which is especially relevant for banks, is that the relationship
between the accounting characteristics of SMEs and response is not assumed a
priori (e.g., linear, quadratic or cubic) and can be determined from the data.
The proposed approach uses the quantile function of the generalized extreme
value distribution as link function as well as smooth functions of accounting
characteristics to flexibly model covariate effects. Therefore, the usual
assumptions in scoring models of symmetric link function and linear or
pre-specied covariate-response relationships are relaxed. Out-of-sample and
out-of-time validation on Italian data shows that our proposal outperforms the
commonly used (logistic) scoring model for different default horizons
- …