The dynamic prediction of company failure: The influence of time, the economy and non-linearity
A Cox regression model with time-varying variables is used to estimate the survival probabilities of a large sample of Australian firms. The research overcomes the problem of making forecasts from a Cox model when the model contains time-varying variables. In out of sample forecast the model has predictive power. Controlling for the state of the economy does not improve the predictive power of the model but allowing for non-linearity between the predictor variables and financial distress risk does improve predictive power.
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