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The Application of Statistical Classification to Business Failure Prediction

Description: Bankruptcy is a costly event. Holders of publicly traded securities can rely on security prices to reflect their risk. Other stakeholders have no such mechanism. Hence, methods for accurately forecasting bankruptcy would be valuable to them. A large body of literature has arisen on bankruptcy forecasting with statistical classification since Beaver (1967) and Altman (1968). Reported total error rates typically are 10%-20%, suggesting that these models reveal information which otherwise is unavailable and has value after financial data is released. This conflicts with evidence on market efficiency which indicates that securities markets adjust rapidly and actually anticipate announcements of financial data. Efforts to resolve this conflict with event study methodology have run afoul of market model specification difficulties. A different approach is taken here. Most extant criticism of research design in this literature concerns inferential techniques but not sampling design. This paper attempts to resolve major sampling design issues. The most important conclusion concerns the usual choice of the individual firm as the sampling unit. While this choice is logically inconsistent with how a forecaster observes financial data over time, no evidence of bias could be found. In this paper, prediction performance is evaluated in terms of expected loss. Most authors calculate total error rates, which fail to reflect documented asymmetries in misclassification costs and prior probabilities. Expected loss overcomes this weakness and also offers a formal means to evaluate forecasts from the perspective of stakeholders other than investors. This study shows that cost of misclassifying bankruptcy must be at least an order of magnitude greater than cost of misclassifying nonbankruptcy before discriminant analysis methods have value. This conclusion follows from both sampling experiments on historical financial data and Monte Carlo experiments on simulated data. However, the Monte Carlo experiments reveal that as the cost ratio increases, robustness of linear ...
Date: December 1994
Creator: Haensly, Paul J.
Partner: UNT Libraries

The Financial Viability of Conrail

Description: A review prepared by the the Office of Technology Assessment (OTA) based on the Final System Plan of the Consolidated Rail Corporation (ConRail) of 1974. It "examines "the critical assumptions affecting ConRail's financial viability using background data developed by USRA, the views of the key parties and independent analysis" (p.1).
Date: September 1975
Creator: United States. Congress. Office of Technology Assessment.
Partner: UNT Libraries Government Documents Department

A Review of National Railroad Issues

Description: The Office of Technology Assessment (OTA) prepared a report that studies how to handle the remaining bankrupt railroads after the creation of Conrail. It examines the current financial states of railroads, and possible ways to address the problem.
Date: December 1975
Creator: United States. Congress. Office of Technology Assessment.
Partner: UNT Libraries Government Documents Department

Bankruptcy: Implementation of Reform Act's Debt Reaffirmation Agreement Provisions

Description: A letter report issued by the Government Accountability Office with an abstract that begins "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (referred to hereafter as the Reform Act) included provisions to better inform individuals who file for personal bankruptcy about their options for reaffirming debt--whereby filers may voluntarily agree to pay certain creditors in an effort to retain assets, such as an automobile. Reaffirmation agreements between debtors and creditors are required, by law, to formally disclose to debtors the terms of the agreement, such as the amount of debt reaffirmed. Some requirements differ for credit unions, such as an exemption for reporting debtor financial information when the debtor's attorney signs the agreement. The Reform Act required GAO to study the bankruptcy reaffirmation process. This report discusses (1) the extent to which required Reform Act disclosures and other information have been incorporated into reaffirmation agreements, (2) the types of debts reaffirmed and the percent this debt comprised of debtors' overall debt burden, and (3) how reaffirmed and original interest rates compare. GAO reviewed a representative sample of bankruptcy files with agreements in five bankruptcy courts (in AL, CA, IL, TX, and WV) selected by, among other things, filing volume and geographic dispersion. Estimates from our sample cannot be generalized to all bankruptcy courts, but can be generalized to each of the selected bankruptcy courts."
Date: December 7, 2007
Creator: United States. Government Accountability Office.
Partner: UNT Libraries Government Documents Department

The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States

Description: The Financial Crisis Inquiry Commission was created to “examine the causes of the current financial and economic crisis in the United States.” In this report, the Commission presents to the President, the Congress, and the American people the results of its examination and its conclusions as to the causes of the crisis.
Date: January 2011
Creator: Financial Crisis Inquiry Commission (U.S.)
Partner: UNT Libraries Government Documents Department

Bankruptcy: Complex Financial Institutions and International Coordination Pose Challenges

Description: A letter report issued by the Government Accountability Office with an abstract that begins "The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) created the Orderly Liquidation Authority (OLA) that can be used to resolve failed systemically important financial institutions. However, questions continued to be raised about the effectiveness of the U.S. Bankruptcy Code (Code) and current mechanisms for international coordination in bankruptcy cases. The Dodd-Frank Act requires GAO to report on the effectiveness of the Code in resolving certain failed financial institutions on an ongoing basis. Among its objectives, this report addresses (1) the effectiveness of Chapters 7 and 11 of the Code for facilitating orderly resolutions of failed financial institutions; (2) proposals for improving the effectiveness of liquidations and reorganizations under the Code; and (3) existing mechanisms that facilitate international coordination under the Code and barriers to coordination of financial institution bankruptcies. GAO reviewed laws, judicial decisions, regulations, data, and academic literature on resolutions, and spoke with relevant government officials, industry representatives, and experts from the legal and academic communities about the effectiveness of the Code."
Date: July 19, 2011
Creator: United States. Government Accountability Office.
Partner: UNT Libraries Government Documents Department

Bankruptcy: Agencies Continue Rulemakings for Clarifying Specific Provisions of Orderly Liquidation Authority

Description: A letter report issued by the Government Accountability Office with an abstract that begins "The federal financial regulators have issued certain final rules for resolving large, complex financial companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) established Orderly Liquidation Authority (OLA). Under OLA, the Federal Deposit Insurance Corporation (FDIC) could serve as receiver of a failing financial company instead of the company entering the bankruptcy process. Regulators continue to address a number of issues related to FDIC’s new authority, including how creditors will ensure that they receive no less than they would under a Chapter 7 bankruptcy liquidation; how certain assets and liabilities would be treated in a new company created by FDIC under OLA; and what role the Securities Investor Protection Corporation would play in the resolution of a broker-dealer under OLA. Regulatory officials reported that they were continuing to draft rules to clarify how OLA would be used. FDIC and the Board of Governors of the Federal Reserve (Federal Reserve) also have issued final rules requiring certain financial companies to file resolution plans or “living wills” that must detail how companies would resolve their operations through an orderly bankruptcy. Regulators told GAO that the plans also would help FDIC plan for the exercise of its resolution authority, including OLA. The filing dates for these plans are phased in over the next year and a half, with the first group of financial companies filing their first plans on July 1, 2012. However, “nonbank financial companies” that also will need to provide plans have yet to be designated."
Date: July 12, 2012
Creator: United States. Government Accountability Office.
Partner: UNT Libraries Government Documents Department

Bankruptcy: Judiciary Should Take Further Steps to Make Bankruptcy Data More Accessible

Description: A letter report issued by the Government Accountability Office with an abstract that begins "There have been long-standing questions about a lack of comprehensive and reliable information on consumer bankruptcies. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Reform Act) required the federal judiciary's Administrative Office of the U.S. Courts (AOUSC) to collect and report certain additional bankruptcy statistics and required the U.S. Trustee Program, which oversees bankruptcy case administration, to develop uniform final reports that provide certain specified data about each case. GAO was asked to examine the (1) availability and accessibility of data from the personal bankruptcy system and (2) potential benefits and limitations of the new data requirements of the Bankruptcy Reform Act in addressing these issues. GAO examined bankruptcy data systems and obtained documentation and interviewed staff from AOUSC, bankruptcy courts, and the Trustee Program; groups representing consumers and creditors; data providers; and academic researchers and other stakeholders."
Date: December 18, 2008
Creator: United States. Government Accountability Office.
Partner: UNT Libraries Government Documents Department

[News Clip: Announcement pkg]

Description: Video footage from the KXAS-TV/NBC station in Fort Worth, Texas, to accompany a news story. This story aired at 6 P.M.
Date: October 18, 1982
Creator: KXAS-TV (Television station : Fort Worth, Tex.)
Location Info:
Partner: UNT Libraries Special Collections

[News Clip: Announcement]

Description: Video footage from the KXAS-TV/NBC station in Fort Worth, Texas, to accompany a news story. This story aired at 10 P.M.
Date: October 18, 1982
Creator: KXAS-TV (Television station : Fort Worth, Tex.)
Location Info:
Partner: UNT Libraries Special Collections

[News Clip: Braniff]

Description: Video footage from the KXAS-TV/NBC station in Fort Worth, Texas, to accompany a news story. This story aired at 5 P.M.
Date: September 28, 1982
Creator: KXAS-TV (Television station : Fort Worth, Tex.)
Partner: UNT Libraries Special Collections

[News Clip: Bankrupt farmer]

Description: Video footage from the KXAS-TV/NBC station in Fort Worth, Texas, to accompany a news story. This story aired at 6 P.M.
Date: November 17, 1982
Creator: KXAS-TV (Television station : Fort Worth, Tex.)
Partner: UNT Libraries Special Collections