Bankruptcy prediction : the credit relevance of reclassfied financial statement ratios

Abstract

In this thesis, we present research within the field of financial statement analysis. We seek to investigate the credit relevance of financial statements reclassified for analytical purposes, and in particular the marginal and absolute credit relevance of accounting ratios derived from the reclassified financial statement. To the best of our knowledge, this is one of the first studies addressing this particular topic. We have conducted several tests, using a conditional logistic model, to assess the credit relevance of the reclassified accounting ratios. The tests were conducted on a sample consisting of 28,081 group financials registered in the Brønnøysund Register Center in the period from 1999 - 2014. We find a reclassification of the traditional financial statement to increase the credit relevance of some liquidity ratios. Our test output indicates that Current interest bearing liabilities/Current financial assets, Working capital/Invested capital and Non-current operating assets/Invested capital have both marginal and absolute credit relevance when tested individually. We also get indications that the combination of these reclassified ratios improves the predictive abilities of traditional bankruptcy prediction models