Proportional Hazards Model of Bank Failure: Evidence from USA

Authors

DOI:

https://doi.org/10.18533/jefs.v5i3.290

Keywords:

Bank Failure, Early Warning system, Proportional Hazard Model

Abstract

This study uses the Cox Proportional Hazards Model, examining the operating and financial characteristics of banks as well as market and economic conditions, to demonstrate what caused US bank failures. Consistent effects indicate US banks were more likely to survive when having higher capital, loan to assets, short term debt securities, and return on assets. The failure rate was greater when their loan loss allowances and past due accounts were high. The results of this research will help banks, central banks, governments, and regulators to forecast which banks are in financial trouble and understand why. They can then take effective action to shore up the financial strength of the affected banks as well as the financial system.

Author Biographies

  • Raymond A. K. Cox, Thompson Rivers University
    Dr. Raymond A. K. Cox is Professor of Finance at Thompson Rivers University and is currently the Chairperson of the Department of Accounting and Finance. He earned his PhD in Finance from Michigan State University.
  • Randall K. Kimmel, Thompson Rivers University
    Dr. Randall K. Kimmel is Assistant Professor of Finance at Thompson Rivers University in Kamloops, British Columbia, Canada. He earned his PhD in Finance from Kent State University. His primary research focus is the study of bank failures.
  • Grace W.Y. Wang, Texas A & M University at Galveston
    Dr. Grace W.Y. Wang is Associate Professor in Maritime Administration at Texas A&M University at Galveston. She holds a PhD in Economics from Texas A&M University. Her research includes policy implications of the global banking crises, deposit insurance, and the early warning systems in predicting banking failures.

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Published

2017-07-25

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