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Logit Regression Based Bankruptcy Prediction of Korean Firms

Author

Listed:
  • Han Chulwoo
  • Kang Hyeongmook
  • Kim Gamin
  • Yi Joseph

Abstract

In this article, we develop a bankruptcy prediction model for Korean firms that utilize logit regression. We find that not only financial accounting ratios but equity market inputs and macro-economic variables are also important predictors of bankruptcy. However, unlike the findings of Campbell et al. (2008), using market value of equity in computing total assets did not improve the model. We compare the model with a Merton-type structural model and find that our model demonstrates a higher prediction power in distinguishing distressed firms from healthy firms. Though our model proves to perform better, we are careful to make a conclusion and rather suggest using several models for the purpose of risk management to reduce model risk.

Suggested Citation

  • Han Chulwoo & Kang Hyeongmook & Kim Gamin & Yi Joseph, 2012. "Logit Regression Based Bankruptcy Prediction of Korean Firms," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 7(1), pages 1-28, December.
    • Handle: RePEc:bpj:apjrin:v:7:y:2012:i:1:p:1-28:n:3
    DOI: 10.1515/2153-3792.1159
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    References listed on IDEAS

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