Misclassification in bankruptcy prediction in Finland: human information processing approach

Article Abstract:

The lens-model approach has been used to investigate the factors leading to mistaken choices in a decision-making experiment in bankruptcy prediction based on the use of accounting information. Particular attention has been given to the disturbance factors in human failure prediction. It has been established that financial analysts are unable to identify the true status of the companies to be evaluated if they receive inconsistent clues. Several other factors also hamper the analysts' ability to make correct classifications. These include depreciation convention and the obsolescence of data.

Accounting Methods, Methods, Accounting

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Cash management behavior and failure prediction

Article Abstract:

Information included in static and dynamic inventory cash management models were examined to forecast business failure in a sample of 41 small and middle-sized Finnish bankrupt companies and their nonbankrupt counterparts. Findings showed that the calculations of the scale elasticity of cash balance with respect to the volume of transactions is substantially less for the bankrupt corporations. Apparently, only the scale elasticity is a statistically important discriminating factor, and only in the first year before bankruptcy.

Analysis, Cash management

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Earnings retention as a specification mechanism in logistic bankruptcy models: a test of the free cash flow theory

Article Abstract:

The appropriateness of earnings retention as a specification approach to enhance forecasting techniques in corporate bankruptcy was examined. Jensen's Free Cash Flow Theory was employed together with a logistic model of bankruptcy to enhance forecasting accuracy. The model utilizes data from the Indian textile industry to demonstrate that data classification based on investment possibilities is another method of enhancing forecasting accuracy.

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