Bankruptcy Prediction the Case of Japanese

In: Business and Management

Submitted By yexue
Words 13066
Pages 53
Rev Account Stud (2009) 14:534–558 DOI 10.1007/s11142-008-9080-5

Bankruptcy prediction: the case of Japanese listed companies
Ming Xu Æ Chu Zhang

Published online: 26 July 2008 Ó Springer Science+Business Media, LLC 2008

Abstract This paper investigates if bankruptcy of Japanese listed companies can be predicted using data from 1992 to 2005. We find that the traditional measures, such as Altman’s (J Finance 23:589–609, 1968) Z-score, Ohlson’s (J Accounting Res 18:109–131, 1980) O-score and the option pricing theory-based distance-todefault, previously developed for the U.S. market, are also individually useful for the Japanese market. Moreover, the predictive power is substantially enhanced when these measures are combined. Based on the unique Japanese institutional features of main banks and business groups (known as Keiretsu), we construct a new measure that incorporates bank dependence and Keiretsu dependence. The new measure further improves the ability to predict bankruptcy of Japanese listed companies. Keywords Bankruptcy risk measure Á Accounting information Á Option pricing theory Á Japanese listed companies Á Bank dependence Á Keiretsu JEL Classifications G15 Á G33

1 Introduction When a company falls into bankruptcy, its stakeholders lose some or all the value they invested in the company. From an investor’s point of view, it is important to
M. Xu (&) School of Accounting and Finance, The Hong Kong Polytechnic University, Kowloon, Hong Kong, China e-mail: afxuming@inet.polyu.edu.hk C. Zhang Department of Finance, The Hong Kong University of Science and Technology, Kowloon, Hong Kong, China

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Bankruptcy prediction

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assess a firm’s likelihood of bankruptcy so that the bankruptcy risk can be appropriately compensated in expected returns. Academic researchers and practitioners have developed various models to estimate bankruptcy…...

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