Evaluation of credit risk based on firm performance
This paper investigates whether productive inefficiency measured as the distance from the industry's 'best practice' frontier is an important ex-ante predictor of business failure. We use samples of French textiles, wood and paper products, computers and R&D companies to obtain efficiency estimates for individual firms in each industry. These efficiency measures are derived from a directional technology distance function constructed empirically using non-parametric data envelopment analysis (DEA) methods. Estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators.
Year of publication: |
2010
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Authors: | Psillaki, Maria ; Tsolas, Ioannis E. ; Margaritis, Dimitris |
Published in: |
European Journal of Operational Research. - Elsevier, ISSN 0377-2217. - Vol. 201.2010, 3, p. 873-881
|
Publisher: |
Elsevier |
Keywords: | G21 Credit risk Data envelopment analysis (DEA) Directional distance functions Bankruptcy prediction |
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