eprintid: 695
rev_number: 12
eprint_status: archive
userid: 27
dir: disk0/00/00/06/95
datestamp: 2011-07-04 09:39:00
lastmod: 2013-10-10 08:36:14
status_changed: 2011-07-04 09:39:00
type: article
metadata_visibility: show
item_issues_count: 0
creators_name: Podobnik, Boris
creators_name: Horvatic, Davor
creators_name: Petersen, Alexander M.
creators_name: Urošević, Branko
creators_name: Stanley, H. Eugene
creators_id: 
creators_id: 
creators_id: alexander.petersen@imtlucca.it
creators_id: 
creators_id: 
title: Bankruptcy risk model and empirical tests
ispublished: pub
subjects: HG
subjects: QC
divisions: EIC
full_text_status: none
keywords: economic sciences,
econophysics,
finance
abstract: We analyze the size dependence and temporal stability of firm bankruptcy risk in the US economy by applying Zipf scaling techniques. We focus on a single risk factor—the debt-to-asset ratio R—in order to study the stability of the Zipf distribution of R over time. We find that the Zipf exponent increases during market crashes, implying that firms go bankrupt with larger values of R. Based on the Zipf analysis, we employ Bayes’s theorem and relate the conditional probability that a bankrupt firm has a ratio R with the conditional probability of bankruptcy for a firm with a given R value. For 2,737 bankrupt firms, we demonstrate size dependence in assets change during the bankruptcy proceedings. Prepetition firm assets and petition firm assets follow Zipf distributions but with different exponents, meaning that firms with smaller assets adjust their assets more than firms with larger assets during the bankruptcy process. We compare bankrupt firms with nonbankrupt firms by analyzing the assets and liabilities of two large subsets of the US economy: 2,545 Nasdaq members and 1,680 New York Stock Exchange (NYSE) members. We find that both assets and liabilities follow a Pareto distribution. The finding is not a trivial consequence of the Zipf scaling relationship of firm size quantified by employees—although the market capitalization of Nasdaq stocks follows a Pareto distribution, the same distribution does not describe NYSE stocks. We propose a coupled Simon model that simultaneously evolves both assets and debt with the possibility of bankruptcy, and we also consider the possibility of firm mergers. 
date: 2010-10
date_type: published
publication: Proceedings of the National Academy of Sciences
volume: 107
number: 43
publisher: National Academy of Sciences
pagerange: 18325-18330
id_number: 10.1073/pnas.1011942107
refereed: TRUE
issn: 1091-6490
official_url: http://www.pnas.org/content/107/43/18325.full.pdf+html
citation:   Podobnik, Boris and Horvatic, Davor and Petersen, Alexander M. and Urošević, Branko and Stanley, H. Eugene  Bankruptcy risk model and empirical tests.  Proceedings of the National Academy of Sciences, 107 (43).  pp. 18325-18330.  ISSN 1091-6490      (2010)