Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JFI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Fixed Income
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Fixed Income

The Journal of Fixed Income

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JFI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Bankruptcy Prediction Models and the Cost of Debt

Sattar A. Mansi, William F. Maxwell and Andrew (Jianzhong) Zhang
The Journal of Fixed Income Spring 2012, 21 (4) 25-42; DOI: https://doi.org/10.3905/jfi.2012.21.4.025
Sattar A. Mansi
is a professor of finance at Virginia Tech in Blacksburg, VA.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: smansi@vt.edu
William F. Maxwell
is a chaired professor of finance at Southern Methodist University in Dallas, TX.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: wmaxwell@smu.edu
Andrew (Jianzhong) Zhang
is an assistant professor of finance at the University of Nevada, Las Vegas in Las Vegas, NV.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: andrew.zhang@unlv.edu
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

Financial institutions and academic researchers utilize bank - ruptcy prediction models to assess distress risk. However, predicting default can be problematic since 1) few firms actually experience default in any one year, 2) the lag between practical and actual default can vary significantly, 3) firms can strategically default, 4) firms can rework their obligations outside of bankruptcy, and 5) default frequency varies significantly over economic life cycles. Thus, relying on bankruptcy data alone to calibrate and validate these models can be problematic. In this article, the authors take an alternative approach by relying on the firm’s cost of debt as a market proxy for risk. They assess the validity of four widely used distress measures including two accounting-based models (Altman’s Z-Score and Ohlson’s O-Score), one reduced-form model (by Campbell, Hilscher, and Szilagyi, CHS), and one structural distance to default model (Merton-DD). The authors find dramatically different assessment of risk based on the models used. The CHS model has the most significant impact on the cost of debt followed by the Merton model. The accounting-based approaches of Altman’s Z-Score and Ohlson’s O-Score are highly ineffective. They caution researchers using Z- and O-Scores. The Merton distance to default model is superior to both accountingbased models but the authors recommend the use of the CHS model in research studies.

TOPICS: Factor-based models, credit risk management, statistical methods, analysis of individual factors/risk premia

  • © 2012 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Fixed Income: 21 (4)
The Journal of Fixed Income
Vol. 21, Issue 4
Spring 2012
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Fixed Income.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Bankruptcy Prediction Models and the Cost of Debt
(Your Name) has sent you a message from The Journal of Fixed Income
(Your Name) thought you would like to see the The Journal of Fixed Income web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Bankruptcy Prediction Models and the Cost of Debt
Sattar A. Mansi, William F. Maxwell, Andrew (Jianzhong) Zhang
The Journal of Fixed Income Mar 2012, 21 (4) 25-42; DOI: 10.3905/jfi.2012.21.4.025

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Bankruptcy Prediction Models and the Cost of Debt
Sattar A. Mansi, William F. Maxwell, Andrew (Jianzhong) Zhang
The Journal of Fixed Income Mar 2012, 21 (4) 25-42; DOI: 10.3905/jfi.2012.21.4.025
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • DATA AND VARIABLE MEASUREMENT
    • EMPIRICAL ANALYSIS
    • CONCLUSION
    • APPENDIX
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • An Empirical Examination of the Term Structure Fundamentals of Credit Spreads
  • Debt Investments in Private Firms: * Legal Institutions and Investment * Performance in 25 Countries
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log in
  • Update your Profile
  • Give us your feedback

© 2022 Pageant Media Ltd | All Rights Reserved | ISSN: 1059-8596 | E-ISSN: 2168-8648

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies