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Bankruptcy Prediction: Evidence from Korean Listed Companies during the IMF Crisis
Author(s) -
Nam JooHa,
Jinn Taehong
Publication year - 2000
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/1467-646x.00061
Subject(s) - bankruptcy , bankruptcy prediction , logit , financial crisis , recession , sample (material) , economics , corporate governance , econometrics , logistic regression , actuarial science , finance , macroeconomics , statistics , chemistry , mathematics , chromatography
This paper empirically studies the predictive model of business failure using the sample of listed companies that went bankrupt during the period from 1997 to 1998 when deep recession driven by the IMF crisis started in Korea. Logit maximum likelihood estimator is employed as the statistical technique. The model demonstrated decent prediction accuracy and robustness. The type I accuracy is 80.4 per cent and the Type II accuracy is 73.9 per cent. The accuracy remains almost at the same level when the model is applied to an independent holdout sample. In addition to building a bankruptcy prediction model this paper finds that most of firms that went bankrupt during the Korean economic crisis from 1997 to 1998 had shown signs of financial distress long before the crisis. Bankruptcy probabilities of the sample are consistently high during the period from 1991 to 1996. The evidence of this paper can be seen as complementary to the perspective that traces Asian economic crisis to the vulnerabilities of corporate governance of Asian countries.