Bankruptcy prediction with financial systemic risk

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

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