Journal of Applied Finance & Banking

Predictive Ability of Accounting Ratio for Bankruptcy

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  • Abstract

    Among the most controversial issues in the literature, and empirical studies that have addressed the subject of bankruptcy prediction, there is certainly the understanding of what kind of indicators is most predictive in the report on time, and especially with fewer errors thorough a corporate crisis. In this regard, the present work contributes to the already vast literature that analyzes the determinants of the probability of firm default, with particular attention to the quantities contained in the accounting ratios. With the support of 9,390 Italian SMEs will occur the specific contribution of each ratio within each rating category considering, therefore, the predictive value of each explanatory variable. This survey’s results can even prove the predictive ability of capital structure and debt coverage compared to the minor validity of some indicators of turnover, profitability, and cash conversion cycle.