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Article

Failure Prediction in the Condition of Information Asymmetry: Tax Arrears as a Substitute When Financial Ratios Are Outdated

School of Economics and Business Administration, University of Tartu, 51009 Tartu, Estonia
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Academic Editor: Błażej Prusak
J. Risk Financial Manag. 2021, 14(10), 470; https://doi.org/10.3390/jrfm14100470
Received: 28 July 2021 / Revised: 21 September 2021 / Accepted: 24 September 2021 / Published: 6 October 2021
(This article belongs to the Special Issue Modern Methods of Bankruptcy Prediction)
This paper aims to study the usefulness of applying tax arrears in failure prediction, when annual reports to calculate financial ratios are outdated. Three known classification methods from the failure prediction literature are applied to the whole population dataset from Estonia, incorporating various tax arrears variables and financial ratios. The results indicate that accuracies remarkably exceeding those of models based on financial ratios can be obtained with variables portraying the average, maximum, and duration contexts of tax arrears. The main contribution of the current study is that it provides a proof of concept that accounting for the dynamics of payment defaults can lead to useful prediction models in cases in which up-to-date financial reports are not available. View Full-Text
Keywords: failure prediction; financial ratios; tax arrears; information asymmetry failure prediction; financial ratios; tax arrears; information asymmetry
MDPI and ACS Style

Lukason, O.; Valgenberg, G. Failure Prediction in the Condition of Information Asymmetry: Tax Arrears as a Substitute When Financial Ratios Are Outdated. J. Risk Financial Manag. 2021, 14, 470. https://doi.org/10.3390/jrfm14100470

AMA Style

Lukason O, Valgenberg G. Failure Prediction in the Condition of Information Asymmetry: Tax Arrears as a Substitute When Financial Ratios Are Outdated. Journal of Risk and Financial Management. 2021; 14(10):470. https://doi.org/10.3390/jrfm14100470

Chicago/Turabian Style

Lukason, Oliver, and Germo Valgenberg. 2021. "Failure Prediction in the Condition of Information Asymmetry: Tax Arrears as a Substitute When Financial Ratios Are Outdated" Journal of Risk and Financial Management 14, no. 10: 470. https://doi.org/10.3390/jrfm14100470

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