Multi-period corporate failure prediction with stochastic covariates

Description

"We provide maximum likelihood estimators of term structures of conditional probabilities of bankruptcy over relatively long time horizons, incorporating the dynamics of firm-specific and macroeconomic covariates. We find evidence in the U.S. industrial machinery and instruments sector, based on over 28,000 firm-quarters of data spanning 1971 to 2001, of significant dependence of the level and shape of the term structure of conditional future bankruptcy probabilities on a firm's distance to default (a volatility-adjusted measure of leverage) and on U.S. personal income growth, among other covariates.Variation in a firm's distance to default has a greater relative effect on the term structure of future failure hazard rates than does a comparatively sized change in U.S. personal income growth, especially at dates more than a year into the future"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- no. 10743.
• Working paper series (National Bureau of Economic Research) -- working paper no. 10743.

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Other Editions

• Multi-period corporate failure prediction with stochastic covariatesNational Bureau of Economic Research2004-01-01
• Multi-period corporate failure prediction with stochastic covariatesElectronic resourceNational Bureau of Economic Research2004-01-01