Journal of
Financial Education

One of the most well-known bankruptcy prediction models was developed by Altman [1968] using multivariate discriminant analysis. Since Altman’s model, a multitude of bankruptcy prediction models have flooded the literature. The primary goal of this paper is to summarize and analyze existing research on bankruptcy prediction studies in order to facilitate more productive future research in this area. This paper traces the literature on bankruptcy prediction from the 1930’s, when studies focused on the use of simple ratio analysis to predict future bankruptcy, to present. The authors discuss how bankruptcy prediction studies have evolved, highlighting the different methods, number and variety of factors, and specific uses of models.

Analysis of 165 bankruptcy prediction studies published from 1965 to present reveals trends in model development. For example, discriminant analysis was the primary method used to develop models in the 1960’s and 1970’s. Investigation of model type by decade shows that the primary method began to shift to logit analysis and neural networks in the 1980’s and 1990’s. The number of factors utilized in models is also analyzed by decade, showing that the average has varied over time but remains around 10 overall.

Analysis of accuracy of the models suggests that multivariate discriminant analysis and neural networks are the most promising methods for bankruptcy prediction models. The findings also suggest that higher model accuracy is not guaranteed with a greater number of factors. Some models with two factors are just as capable of accurate prediction as models with 21 factors.

Pages 1-43

There is an increased awareness of the need to bridge the gap between financial theory and practice in the United States. This issue has been discussed both in the academic community as well as in the financial community. In its attempt to bridge this gap; Quinnipiac University founded the Terry Goodwin ‘67 Financial Technology Center (the "Center") in January 2004. The Center has adopted as its mission to integrate the resources available at the Center into the core finance curriculum. The purpose of this paper is to discuss how the resources of the Center can be integrated into the finance core curriculum as well as illustrate how a new course, Market Microstructure and Trading, utilizes the resources available at the Center.

Pages 44-52

One of the most challenging aspects of teaching a capital budgeting course is connecting the wide divide between the theoretical or normative approach to capital budgeting and the applied or positive approach. I have created an assignment in my capital budgeting course to help bridge this divide and the purpose of this paper is to describe the assignment to encourage others to use it in their courses. Additionally, the paper will inform potential instructors of the many benefits obtained through such an assignment and some of the potential concerns.

Pages 53-62

A variety of teaching methods exist today to promote learning, but many lack a critical participatory element. The purpose of this paper is to present the teaching methods used to integrate experiential learning with traditional bank theory. This approach turns the class into an innovative, hands-on collaborative learning technique, designed to integrate the fundamentals of banking with skills in planning, decision-making, analysis, and problem solving. Lectures are enhanced with a bank simulation that requires group competition. A bank analysis based on regulatory performance guidelines is individually assigned to synthesize the knowledge gained in theory from the lectures with the expertise in bank decision-making experienced in the simulation. To ensure that the subject matter is understood at an intuitive level, written assignments are required for both the bank simulation and the bank analysis. Further, in an effort to keep course content fresh and up-to-date, articles are assigned and discussed.

Pages 63-73

A key issue confronting County Line Markets (CLM) was to improve the management of its working capital. One aspect of its working capital management was to reduce cash balances at its 67 store locations so as to free up funds to support CLM’s expansion to 100 stores. The other aspect of working capital policy required an increase in inventory to support CLM’s "advance purchase" policy. In the retail grocery industry, it is quite common for manufacturers to offer retail grocers "deep discounts" on merchandise to reduce their inventory. CLM viewed the ability to take maximum advantage of advance purchase opportunities as a key ingredient in its competitive strategy.

CLM’s advance-purchase model was developed as an alternative to an EOQ (Economic Order Quantity) model. CLM’s advance purchase model, for non-perishable merchandise, trades-off storage, carrying and handling costs against cost of goods savings from the advance purchase. CLM’s management was utilizing the general framework of the advance purchase model to justify to the bank its increased investment in inventory.

Pages 74-88