Financial performance in manufacturing firms: A comparison between parametric and non-parametric approaches

This paper provides a methodological analysis of credit risk in manufacturing firms by using two different credit scoring approaches. The first is the traditional discriminant approach for bankruptcy prediction based on a logistic regression model, whereas the second, data envelopment analysis, is a nonparametric approach for measuring firms' efficiency that does not require ex-ante information on bankrupted firms. By using a manufacturing sample of both healthy and bankrupted firms during the period 2003-09 we provide an in-depth comparison of discriminant analysis and data envelopment analysis and conclude that a correct evaluation of firms' credit worthiness is the result of successive fine-tuning procedures requiring the use of multiple methodological tools. © National Association for Business Economics.