Modeling Financial Distress and Bankruptcy

Abstract

Modeling bankruptcy and financial distress is the most common area of statistical--econometric research in empirical corporate finance. Information regarding financial distress, bankruptcy, and other types of cessation of company activities is of critical importance for owners of equity, management, lenders, investors, and other stakeholders. In this chapter, we try to enumerate the essential issues of microeconometric modeling in this field, including the selection of predictions, unbalanced samples, modeling for financial distress versus bankruptcy, as well as modeling firm exit and firm survival.