Predicting Corporate Bankruptcy With Personality Traits

Sammanfattning: This study aims to research whether incumbent corporate bankruptcy prediction models that are based on solely financial variables can be augmented with personality traits variables to increase their performance. For this purpose, a data set consisting of active and bankrupt small and medium enterprises in 13 European countries is studied. A quasi-Altman-Sabato (2007) model consisting of financial variables leverage, liquidity, profitability, coverage, and activity is developed and used as a control model. Then, Big Five personality traits are used to moderate the financial variables in the control model, by creating five new models, one for each personality trait. The findings show that all financial variables are statistically significantly moderated by conscientiousness and emotional stability. A majority of the financial variables are statistically significantly moderated by agreeableness, extraversion, and openness. Furthermore, moderating the financial variables with conscientiousness showed the best performance, thus decreasing information asymmetry. On the other hand, moderating the financial variables with extraversion reduced the model performance (sensitivity rate) vis-à-vis the control model, thus increasing information asymmetry.