Forecasting Corporate Failure In Malaysian Industrial Sector Firms
Financial ratios have long been used as predictor of important events in financial markets of developed economies. Formulating business failure prediction models utilising financial ratios is no exception. However, there is hardly any evidence on failure prediction in developing markets such as M...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Asian Academy of Management (AAM)
2001
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| Subjects: | |
| Online Access: | http://eprints.usm.my/35467/1/6-1-2.pdf http://eprints.usm.my/35467/ http://web.usm.my/aamj/6.1.2001/6-1-2.pdf |
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| Institution: | Universiti Sains Malaysia |
| Language: | English |
| Summary: | Financial ratios have long been used as predictor of important events in financial
markets of developed economies. Formulating business failure prediction models
utilising financial ratios is no exception. However, there is hardly any evidence on
failure prediction in developing markets such as Malaysia. This study develops a
failure prediction model for industrial sector listed firms that discriminates between
24 failed and non-failed for the period 1980 to 1996. The findings show that the
model correctly and significantly classified 91.1% and 89.3% of the failed and nonfailed firms respectively. An alternative prediction model developed based solely
on accounting information showed similar results. These models predict failure up
to 4 years before the actual event. The variables in the final model implies that
profits, cash flows, working capital and net worth are important determinants of
failures of firms listed in the Kuala Lumpur Stock Exchange. |
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