Narrow Results

In this chapter, we propose the structural model in terms of the Stair Tree model and barrier option to evaluate the fair deposit insurance premium in accordance with the constraints of the deposit insurance contracts and the consideration of bankruptcy costs. First, we show that the deposit insurance model in Brockman and Turle (2003) is a special case of our model. Second, the simulation results suggest that insurers should adopt a forbearance policy instead of a strict policy for closure regulation to avoid losses from bankruptcy costs. An appropriate deposit insurance premium can alleviate potential moral hazard problems caused by a forbearance policy. Our simulation results can be used as reference in risk management for individual banks and for the Federal Deposit Insurance Corporation (FDIC).

This chapter shows examples of applying several current data mining approaches and alternative models in an accounting and finance context such as predicting bankruptcy using US, Korean, and Chinese capital market data. Big data in accounting and finance context is a good fit for data analytic tool applications like data mining. Our previous study also empirically tested Japanese capital market data and found similar prediction rates. However, overall prediction rates depend on different countries and time periods (Mihalovic, 2016). These results are an improvement on previous bankruptcy prediction studies using traditional probit or logit analysis or multiple discriminant analysis. The recent survival model shows similar prediction rates in bankruptcy studies. However, we need longitudinal data to use the survival model. Because of computer technology advances, it is easier to apply data mining approaches. In addition, current data mining methods can be applied to other accounting and finance contexts such as auditor changes, audit opinion prediction studies, and internal control weakness studies. Our first paper shows 13 data mining approaches to predict bankruptcy after the Sarbanes–Oxley Act (SOX) (2002) implementation using 2008–2009 US data with 13 financial ratios and internal control weaknesses, dividend payout, and market return variables. Our second paper shows application of a Multiple Criteria Linear Programming Data Mining Approach using Korean data. Our last paper shows bankruptcy prediction models using Chinese firm data via several data mining tools and compared with those of traditional logit analysis. Analytic Hierarchy Process and Fuzzy Set also can be applied as an alternative method of data mining tools in accounting and finance studies. Natural language processing can be used as a part of the artificial intelligence domain in accounting and finance in the future (Fisher et al., 2016).