Business Bankruptcy Prediction Based on Survival Analysis Approach

Abstract

This study sampled companies listed on Taiwan Stock Exchange that examined financial distress between 2003 and 2009. It uses the survival analysis to find the main indicators which can explain the business bankruptcy in Taiwan. This paper uses the Cox Proportional Hazard Model to assess the usefulness of traditional financial ratios and market variables as predictors of the probability of business failure to a given time. This paper presents empirical results of a study regarding 12 financial ratios as predictors of business failure in Taiwan. It showed that it does not need many ratios to be able to anticipate potential business bankruptcy. The financial distress probability model is constructed using Profitability, Leverage, Efficiency and Valuation ratio variables. In the proposed steps of business failure prediction model, it used detail SAS procedure. The study proves that the accuracies of classification of the mode in overall accuracy of classification are 87.93%.