Forecasting Bankruptcy : An European Analysis

Several studies investigated the predictability of financial distress. With this paper, we analyse the ability of Integrated Rating model to anticipate potential corporate crisis. In particular, we study bankrupt companies of four European Countries (Czech Republic, Spain, Italy, France, Slovakia, and the United Kingdom). We find that Integrated Rating model can forecast bankruptcy (assessing a negative merit of credit judgment) with an accuracy that exceeds 75%. Moreover, we test and determined that the merit of credit assessment is stable over time, and that, despite this, the banking system does not recognize when a company is not funded efficiently