Predicting shifts in the mean of a multivariate time series process: An application in predicting business failures
Journal
Journal of the American Statistical Association
Date Issued
June 1993
Author(s)
DOI
10.1080/01621459.1993.10476294
Abstract
A firm in the early stages of financial distress exhibits characteristics different from those of healthy firms. As the economic condition of a firm worsens, its financial characteristics shift toward those of failed firms. Practitioners in the financial sector have long been interested in the early detection of a firm’s slide toward insolvency. Several models have been developed with this purpose in mind, but these older models are static in nature. Therefore, a need exists for the development of business failure prediction models that assess the financial condition of firms sequentially over time. This article addresses this need by presenting a sequential business failure prediction model.