BA 3340 Lecture Notes - Lecture 99: Logit, Lump Sum, Byrsonima Crassifolia
Document Summary
A method used to classify 9rms into bankruptcy versus non-bankruptcy groups. The method derives a linear combinaaon of 9nancial raaos that (best) disanguish between bankruptcy and non-bankruptcy 9rms. Z-score < 1. 81 => high bankruptcy risk o o. 1. 81 < z-score < 2. 99 => grey area and needs to be analysed further. Types 1 and 2 errors one year prior to bankruptcy: 6% and 3% The z-score approach is able to dioerenaate between high and low proabability. However, in some cases the signal(s) come too late! (see r rvik example p. 295-296) Dummy 1 is one if net income is negaave and zero otherwise. Dummy 2 is one if total liabiliaes exceed total assets (i. e. equity is negaave) Probability of bankruptcy = 1/(1+e-y) where e equals 2. 7182. A value below 3. 8% implies a low probability of bankruptcy. A value above 3. 8% implies an increased probability of bankruptcy. Cons o o o o o o o.
