Validation the Role of Previous Information in Predicting TSE Corporation Bankruptcy

For more than 50 years, predicting corporate bankruptcy has been a critical topic of global interest resulting in significant research devoted to the development and refinement of corporate bankruptcy prediction models. However, most studies overwhelmingly concentrated on using single period's information to identify bankruptcy risks and very few studies investigated the role of previous information in prediction models. This gap induced this study to construct a rolling-logit model, which uses of present and previous information and validate its performances in predicting TSE (Taiwan Security Exchange) corporate bankruptcy. The empirical results demonstrated the rolling-logit model, compared to the benchmark model, exhibited higher overall accuracy. The successful performance was attributed to a recall mechanism which allows the model to capture previous information that measures a corporation's risks based upon consistent information across time.