A comprehensive study of bankruptcy prediction: Accounting ratios, market variables, and microstructure

Bankruptcy prediction has been a fruitful area of research. Univariate analysis and discriminant analysis were the first methodologies used. While they perform relatively well at correctly classifying bankrupt and nonbankrupt firms, their predictive ability has come into question over time. Univariate analysis lacks the big picture that financial distress entails. Multivariate discriminant analysis requires stringent assumptions that are violated when dealing with accounting ratios and market variables. This has led to the use of more complex models such as neural networks. While the accuracy of the predictions has improved with the use of more technical models, there is still an important point missing. Accounting ratios are the usual discriminating variables used in bankruptcy prediction. However, accounting ratios are backward-looking variables. At best, they are a current snapshot of the firm. Market variables are forward-looking variables. They are determined by discounting future outcomes. Microstructure variables, such as the bid-ask spread, also contain important information. Insiders are privy to more information that the retail investor, so if any financial distress is looming, the insiders should know before the general public. Therefore, any model in bankruptcy prediction should include market and microstructure variables. That is the focus of this dissertation. The traditional models and the newer, more technical models were tested and compared to the previous literature by employing accounting ratios, market variables, and microstructure variables. Our findings suggest that the more technical models are preferable, and that a mix of accounting and market variables are best at correctly classifying and predicting bankrupt firms. Multi-layer perceptron appears to be the most accurate model following the results. The set of best discriminating variables includes price, standard deviation of price, the bid-ask spread, net income to sale, working capital to total assets, and current liabilities to total assets.

Vaclav Havel's Legacy of Freedom

Vaclav Havel changed history as an advocate of freedom and universal human rights. A playwright, essayist, poet, dissident, and politician, Havel became a symbol of the civic opposition to the communist government in Czechoslovakia. After the Prague “Velvet Revolution” that toppled the communist regime, Havel became president of Czechoslovakia, and later the first president of the Czech Republic. Ten years ago, on September 21, 2002, President Vaclav Havel came to FIU and delivered memorable remarks about freedom and in support of a peaceful transition to democracy in Cuba. Madeleine K. Albright is Chair of Albright Stonebridge Group, a global strategy firm, and Chair of Albright Capital Management LLC, an investment advisory firm focused on emerging markets. She was the 64th Secretary of State of the United States. On May 29, 2012, Dr. Albright received the Presidential Medal of Freedom, the nation’s highest civilian honor, from President Obama. She received an honorary degree from FIU in 1996. Dr. Albright is a Professor in the Practice of Diplomacy at the Georgetown University School of Foreign Service. The panel discussion includes: Thomas Dine, President of the American Friends of the Czech Republic The Honorable Petr Gandalovic, Ambassador of the Czech Republic to the U.S. Carl Gershman, President of the National Endowment for Democracy Martin Palous, Director, Vaclav Havel Library, SIPA Senior Fellow Marifeli Perez-Stable, Interim Director, Latin American and Caribbean Center