Description, explanation, prediction – the evolution of bankruptcy studies?

This paper describes a number of models used in bankruptcy studies to date. They arise from two basic model designs used in studies of financial distress: cross-sectional studies that compare healthy and distressed firms, and time-series formulations that study the path to failure of (usually) distressed firms only. These two designs inherently foster different research objectives. Different instances of the most recent work taken from each of the above research groups, broadly categorized by design, are described here including new work by this author. It is argued that those that investigate the distress continuum with predominantly explanatory objectives are superior on a number of criteria to the studies that follow what is essentially a case-control structure and espouse prediction as their objective.