Please use this identifier to cite or link to this item:

Title: Do traditional financial distress prediction models predict the early warning signs of financial distress?
Authors: Ashraf, Sumaira
Félix, Elisabete G.S.
Serrasqueiro, Zélia
Keywords: financial distress
emerging market
prediction models
logit analysis
probit model
Issue Date: 2019
Publisher: Journal of Risk and Financial Management
Citation: Ashraf, S., Félix, E.G.S. and Serrasqueiro, Z., 2019. Do traditional financial distress prediction models predict the early warning signs of financial distress? Journal of Risk and Financial Management, 12(2), 1-17.
Abstract: Purpose: This study aims to compare the prediction accuracy of traditional distress prediction models for the firms which are at an early and advanced stage of distress in an emerging market, Pakistan, during 2001–2015. Design/methodology/approach: The methodology involves constructing model scores for financially distressed and stable firms and then comparing the prediction accuracy of the models with the original position. In addition to the testing for the whole sample period, comparison of the accuracy of the distress prediction models before, during, and after the financial crisis was also done. Findings: The results indicate that the three-variable probit model has the highest overall prediction accuracy for our sample, while the Z-score model more accurately predicts insolvency for both types of firms, i.e., those that are at an early stage as well as those that are at an advanced stage of financial distress. Furthermore, the study concludes that the predictive ability of all the traditional financial distress prediction models declines during the period of the financial crisis. Originality/value: An important contribution is the widening of the definition of financially distressed firms to consider the early warning signs related to failure in dividend/bonus declaration, quotation of face value, annual general meeting, and listing fee. Further, the results suggest that there is a need to develop a model by identifying variables which will have a higher impact on the financial distress of firms operating in both developed and developing markets.
Type: article
Appears in Collections:CEFAGE - Publicações - Artigos em Revistas Internacionais Com Arbitragem Científica

Files in This Item:

File Description SizeFormat
Página inicial.pdf204.64 kBAdobe PDFView/Open
FacebookTwitterDeliciousLinkedInDiggGoogle BookmarksMySpaceOrkut
Formato BibTex mendeley Endnote Logotipo do DeGóis 

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.


Dspace Dspace
DSpace Software, version 1.6.2 Copyright © 2002-2008 MIT and Hewlett-Packard - Feedback
UEvora B-On Curriculum DeGois