Bank Failure Prediction Models for the Developing and Developed Countries: Identifying the Economic Value Added for Predicting Failure

Abstract

This study used data from 2003-2013, and used a logistic model to analyze the factors that influence financial early warning systems in developing and developed countries. We employed a bank capital adequacy ratio less than 8%, Tier I capital ratio less than 4%, and nonperforming loan ratio more than one third to measure bank failure and identify the financial ratio that most accurately predicts bank failure. The results indicate that the economic value added index is more effective than other indexes in predicting bank failure in NAFTA, ASEAN, EU, NIC, and G20 nations.