Arbeitspapier
Failure prediction models: performance, disagreements, and internal rating systems
We address a number of comparative issues relating to the performance of failure prediction models for small, private firms. We use two models provided by vendors, a model developed by the National Bank of Belgium, and the Altman Z-score model to investigate model power, the extent of disagreement between models in the ranking of firms, and the design of internal rating systems. We also examine the potential gains from combining the output of multiple models. We find that the power of all four models in predicting bankruptcies is very good at the one-year horizon, even though not all of the models were developed using bankruptcy data and the models use different statistical methodologies. Disagreements in firm rankings are nevertheless significant across models, and model choice will have an impact on loan pricing and origination decisions. We find that it is possible to realize important gains from combining models with similar power. In addition, we show that it can also be beneficial to combine a weaker model with a stronger one if disagreements across models with respect to failing firms are high enough. Finally, the number of classes in an internal rating system appears to be more important than the distribution of borrowers across classes
- Language
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Englisch
- Bibliographic citation
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Series: NBB Working Paper ; No. 123
- Classification
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Wirtschaft
Market Structure, Pricing, and Design: General
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Financial Institutions and Services: Government Policy and Regulation
Bankruptcy; Liquidation
- Subject
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Basel II
failure prediction
internal ratings
model power
rating systems
ROC analysis.
Basler Akkord
Unternehmensbewertung
KMU
Insolvenz
Prognoseverfahren
Bewertung
- Event
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Geistige Schöpfung
- (who)
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Mitchell, Janet
Van Roy, Patrick
- Event
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Veröffentlichung
- (who)
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National Bank of Belgium
- (where)
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Brussels
- (when)
-
2007
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Mitchell, Janet
- Van Roy, Patrick
- National Bank of Belgium
Time of origin
- 2007
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Visual Analytics for the Prediction of Movie Rating and Box Office Performance
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The Importance of Financial Performance for Evaluating Supplier Performance – a Comparison with the Internal Ratings of Credit Institutions
Advanced Failure Prediction in Complex Software Systems
Evaluating prediction markets for internal control applications
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