Predicting the Lifespan of a Company: An Important Factor for Capital Reallocation

Keywords:
Joint-stock companies, Markov chain, credit rating, S&P 500.

Abstract:
In this paper, the authors will attempt to estimate the expected value of the percentage of the companies that currently have a credit rating and that will go bankrupt after a certain period of time. The authors applied the method of simulation, i.e. the transition matrix of a Markov chain, using as relevant data information on the credit ratings of open joint-stock companies listed on the S&P 500 Index. Research results suggest that the most likely situation is that half of those companies with a CCC (C) credit rating will cease operations after only four years; that is, they will lose their credit rating and will be replaced by some other, more prosperous companies.

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V. Mizdraković, N. Stanišić, S. Popovčić-Avrić, M. Đenić, “Predicting the Lifespan of a Company: An Important Factor for Capital Reallocation,” in Synthesis 2015 - International Scientific Conference of IT and Business-Related Research, Belgrade, Singidunum University, Serbia, 2015, pp. 394-399. doi:10.15308/Synthesis-2015-394-399

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Mizdraković, V., Stanišić, N., Popovčić-Avrić, S., Đenić, M. (2015). Predicting the Lifespan of a Company: An Important Factor for Capital Reallocation. Paper presented at Synthesis 2015 - International Scientific Conference of IT and Business-Related Research. doi:10.15308/Synthesis-2015-394-399

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