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Detecting financial distress

Abdullah, Nur Adiana Hiau and Ahmad, Abd Halim @ Hamilton (2005) Detecting financial distress. International Journal of Management Studies (IJMS), 12 (1). pp. 77-95. ISSN 0127-8983

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This paper examines two types of statistical tests, which are multiple discriminant analysis (MDA) and the logit model to detect financially distressed companies. Comparison between the two statistical tests is implemented to identiy factors that could differentiate financially distressed companies from the healthy company. Among the fifteen explanators, M D A shows that the current ratios, net income to total asset, and sales to current asset, are the indicators of financially distressed companies. Other than net income to total asset, the logit model provides two different ratios which are shareholders’filnd to total liabilities, and cash flow from financing to total liabilities, to identi@ financially distressed companies. It zuasfound that the logit model could accurately predict 91.5% of the estimation sample and 90% of the holdout sample whereas the discriminant model shows an overall accuracy rate of 84.5% and 80% for the estimatiorl and the holdout sample respectively.

Item Type: Article
Uncontrolled Keywords: statistical tests, multiple discriminant analysis (MDA), logit model, financially distressed companies
Subjects: H Social Sciences > HG Finance
Divisions: College of Business
Depositing User: Prof. Dr. Nur Adiana Hiau Abdullah
Date Deposited: 23 Jun 2010 22:58
Last Modified: 28 Jun 2010 09:48

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