Do cash flow variables improve the predictive accuracy of a Cox proportional hazards model for bank failure?

This research uses the Cox proportional hazard model and bank cash flow information to determine whether adding cashflow information will improve current bank failure prediction methods. In the corporate failure prediction literature it has been shown that including cash flow variables improves the performance of the models. This paper tests whether a similar result occurs for bank failure prediction models and discusses the policy implications of such results. The results of the study are mixed. Adding the cashflow information results in greater predictive accuracy in only the longer horizon models tested.