The dynamic prediction of company failure

Across disciplines, and particularly in medicine, Cox’s proportional hazards model is one of the most popular models for analyzing survival. We use a Cox model with dynamic variables to estimate survival probabilities and make dynamic financial distress predictions for a large sample of Australian listed companies. This is one of relatively few studies to apply dynamic variables in forecasting financial distress. It is the first study to provide forecasts of survival probabilities using the Cox model with dynamic variables. In contrast to most bankruptcy studies using static models, our model’s predictive accuracy improves as the time horizon lengthens.