Title: Determinants of corporate bankruptcy: Identification and uncertainty
Authors: Yan Yu - University of Cincinnati (United States) [presenting]
Abstract: Corporate bankruptcy is both socially influential and economically detrimental. Hence, research in corporate bankruptcy is critically important. Some natural questions arise: 1) What are important determinants of corporate bankruptcy? 2) How reliable are the determinants identified? the aim is to identify important determinants and investigate their uncertainly. We build a comprehensive bankruptcy database including as many determinants proposed in the literature as possible merging both accounting statements and market information. We explore various variable selection tools and find that important determinants include both market variables and accounting ratios. More importantly, we construct a model confidence bound on the selected determinants. We further propose a graphical representation of the model uncertainty and define deviation and skewness measures to facilitate an understanding on how reliable the identified important determinants are. We find that among eight predictive variables, stock price is identified with high confidence, while stock excess return is included within the model confidence bound, yet market to book ratio is outside the model confidence bound.