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Predicting default more accurately: to proxy or not to proxy for default?

Author

Listed:
  • Neta Sher

    (BGU)

  • Koresh Galil

    (BGU)

Abstract

Previous studies targeting accuracy improvement of default models mainly focused on the choice of the explanatory variables and the statistical approach. We alter the focus to the choice of the dependent variable. We particularly explore whether the common practice (in the literature) of using proxies for default events (bankruptcy or delisting) to increase sample size indeed improves accuracy. We examine four definitions of financial distress and show that each definition carries considerably different characteristics. We discover that rating agencies effort to measure correctly the timing of default is valuable. Our main conclusion is that one cannot improve default prediction by making use of other distress events.
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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Neta Sher & Koresh Galil, 2015. "Predicting default more accurately: to proxy or not to proxy for default?," Working Papers 1505, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:1505
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    File URL: http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/1505.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Koresh Galil & Margalit Samuel & Offer Moshe Shapir & Wolf Wagner, 2023. "Bailouts and the modeling of bank distress," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 7-30, February.

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    More about this item

    Keywords

    Default; Bankruptcy; Financial Distress; Delisting; Bankruptcy Prediction; Default Prediction.;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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