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| Author: | Platt, H. D. Platt, M. B. |
| Title: | Development of a class of stable predictive variables: The case of bankruptcy prediction |
| Journal: | Journal of Business Finance and Accounting
1990 : SPRING, VOL. 17:1, p. 31-51 |
| Index terms: | BANKRUPTCY PREDICTION THEORY FINANCIAL ANALYSIS INDUSTRIES COMPANIES COMPANY FAILURES |
| Language: | eng |
| Abstract: | One plausible explanation for the relatively lower out-of-sample classification rates of corporate failure models compared to within-sample classification results is that individual company financial data used to build these models are not directly comparable across industries. The other is that the financial data have not been stable over time. Industry-relative ratios, created by dividing a firm's ratio by the industry's average ratio, may be compared across industries and are shown to be more stable than unadjusted financial ratios. A bankruptcy classification model using industry-relative ratios classified firms ex post as well as previous studies. |
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