Business failure models: How to incorporte causal effects ?

Abstract

This research thesis deals with the question of how to incorporate causal effects into traditional business failure models, that can predict bankruptcy for a given sample. The aim of this study is to provide a comprehensive analysis of a company’s financial construction as well as the traditional failure paths that are based thereon, before establishing a new concept for a model combining both causal and predictive modelling. The model can build a foundation for a more accurate business failure prediction. The required analysis to obtain these results involves thorough research about core financial elements, the functionality of discriminant analysis as well as causal modelling. Moreover, a discriminant analysis is done on a sample of Belgian firms.