TY - JOUR
T1 - Empirical comparison of hazard models in predicting SMEs failure
AU - Gupta, Jairaj
AU - Gregoriou, Andros
AU - Ebrahimi, Tahera
PY - 2018/3/4
Y1 - 2018/3/4
N2 - This study aims to shed light on the debate concerning the choice between discrete-time and continuous-time hazard models in making bankruptcy or any binary prediction using interval censored data. Building on the theoretical suggestions from various disciplines, we empirically compare widely used discrete-time hazard models (with logit and clog-log links) and the continuous-time Cox Proportional Hazards (CPH) model in predicting bankruptcy and financial distress of the United States Small and Medium-sized Enterprises (SMEs). Consistent with the theoretical arguments, we report that discrete-time hazard models are superior to the continuous-time CPH model in making binary predictions using interval censored data. Moreover, hazard models developed using a failure definition based jointly on bankruptcy laws and firms’ financial health exhibit superior goodness of fit and classification measures, in comparison to models that employ a failure definition based either on bankruptcy laws or firms’ financial health alone.
AB - This study aims to shed light on the debate concerning the choice between discrete-time and continuous-time hazard models in making bankruptcy or any binary prediction using interval censored data. Building on the theoretical suggestions from various disciplines, we empirically compare widely used discrete-time hazard models (with logit and clog-log links) and the continuous-time Cox Proportional Hazards (CPH) model in predicting bankruptcy and financial distress of the United States Small and Medium-sized Enterprises (SMEs). Consistent with the theoretical arguments, we report that discrete-time hazard models are superior to the continuous-time CPH model in making binary predictions using interval censored data. Moreover, hazard models developed using a failure definition based jointly on bankruptcy laws and firms’ financial health exhibit superior goodness of fit and classification measures, in comparison to models that employ a failure definition based either on bankruptcy laws or firms’ financial health alone.
KW - Bankruptcy
KW - Cox proportional hazard
KW - Discrete hazard models
KW - Financial distress
KW - SMEs
UR - http://www.scopus.com/inward/record.url?scp=85020549514&partnerID=8YFLogxK
U2 - 10.1080/14697688.2017.1307514
DO - 10.1080/14697688.2017.1307514
M3 - Article
AN - SCOPUS:85020549514
VL - 18
SP - 437
EP - 466
JO - Quantitative Finance
JF - Quantitative Finance
SN - 1469-7688
IS - 3
ER -