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Bankruptcy prediction with financial systemic risk

Jia, Zhehao; Shi, Yukun; Yan, Cheng; Duygun, Meryem

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Authors

Zhehao Jia

Yukun Shi

Cheng Yan

MERYEM DUYGUN Meryem.Duygun@nottingham.ac.uk
Aviva Chair in Risk and Insurance



Abstract

Financial systemic risk-defined as the risk of collapse of an entire financial system vis-à-vis any one individual financial institution-is making inroads into academic research in the aftermath of the late 2000s Global Financial Crisis. We shed light on this new concept by investigating the value of various systemic financial risk measures in the corporate failure predictions of listed nonfinancial firms. Our sample includes 225,813 firm-quarter observations covering 8,604 US firms from 2000 Q1 to 2016 Q4. We find that financial systemic risk is incrementally useful in forecasting corporate failure over and above the predictions of the traditional accounting-based and market-based factors. Our results are stronger when the firm in consideration has higher equity volatility relative to financial sector volatility, smaller size relative to the market, and more debts in current liabilities. The combined evidence suggests that systemic risk is a useful supplementary source of information in capital markets.

Citation

Jia, Z., Shi, Y., Yan, C., & Duygun, M. (2020). Bankruptcy prediction with financial systemic risk. European Journal of Finance, 26(7-8), 666-690. https://doi.org/10.1080/1351847X.2019.1656095

Journal Article Type Article
Acceptance Date Aug 11, 2019
Online Publication Date Aug 17, 2019
Publication Date 2020
Deposit Date Aug 27, 2019
Publicly Available Date Feb 18, 2021
Journal The European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Routledge
Peer Reviewed Peer Reviewed
Volume 26
Issue 7-8
Pages 666-690
DOI https://doi.org/10.1080/1351847X.2019.1656095
Keywords Bankruptcy prediction; Systemic risk; Hazard model JEL classification: G33; G32; C35; G10
Public URL https://nottingham-repository.worktribe.com/output/2506172
Publisher URL https://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1656095
Additional Information This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 17 Aug 2019, available online: https://doi.org/10.1080/1351847X.2019.1656095
Contract Date Aug 27, 2019

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