Financial statement comparability and default risk
We provide evidence that financial statement comparability facilitates improving the prediction accuracy of bankruptcy models including the theoretical BSM model, the Altman z-score and the Ohlson o-score. We provide a direct link between financial statement comparability and credit rating by showing that bankruptcy prediction models (i.e., KMV-Merton, Altman z-score and Ohlson o-score) act as an intermediate step between accounting comparability and credit rating agencies. We subsequently update the coefficients of z- and o-scores for the years 2017 to 2017, which leads to more accurate bankruptcy prediction z- and o-scores, that are more able to correctly predict bankruptcies in the next period, especially the updated o-score. We additionally incorporate financial statement comparability in our updated and new z- and o-scores and report that our updated and new measures have higher predictive ability to correctly forecast default compared to the scores without accounting comparability, especially when the updated o-score is used. Our updated coefficients scores can be widely used by the academic community when using the z- and o-scores, with or without the inclusion of comparability.