Do traditional financial distress prediction models predict the early warning signs of financial distress?
Autor(a) principal: | |
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Data de Publicação: | 2019 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10174/26891 https://doi.org/10.3390/jrfm12020055 |
Resumo: | 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. |
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Do traditional financial distress prediction models predict the early warning signs of financial distress?financial distressemerging marketprediction modelsZ-scorelogit analysisprobit modelPurpose: 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.This paper is financed by National Funds of the FCT–Portuguese Foundation for Science and Technology within the project “UID/ECO/04007/2019”.Journal of Risk and Financial Management2020-02-11T11:05:36Z2020-02-112019-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articlehttp://hdl.handle.net/10174/26891https://doi.org/10.3390/jrfm12020055http://hdl.handle.net/10174/26891https://doi.org/10.3390/jrfm12020055engAshraf, 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.executive.sumaira@gmail.comefelix@uevora.ptzelia@ubi.pt256Ashraf, SumairaFélix, Elisabete G.S.Serrasqueiro, Zéliainfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-01-03T19:21:58Zoai:dspace.uevora.pt:10174/26891Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T01:17:05.412748Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
title |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
spellingShingle |
Do traditional financial distress prediction models predict the early warning signs of financial distress? Ashraf, Sumaira financial distress emerging market prediction models Z-score logit analysis probit model |
title_short |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
title_full |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
title_fullStr |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
title_full_unstemmed |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
title_sort |
Do traditional financial distress prediction models predict the early warning signs of financial distress? |
author |
Ashraf, Sumaira |
author_facet |
Ashraf, Sumaira Félix, Elisabete G.S. Serrasqueiro, Zélia |
author_role |
author |
author2 |
Félix, Elisabete G.S. Serrasqueiro, Zélia |
author2_role |
author author |
dc.contributor.author.fl_str_mv |
Ashraf, Sumaira Félix, Elisabete G.S. Serrasqueiro, Zélia |
dc.subject.por.fl_str_mv |
financial distress emerging market prediction models Z-score logit analysis probit model |
topic |
financial distress emerging market prediction models Z-score logit analysis probit model |
description |
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. |
publishDate |
2019 |
dc.date.none.fl_str_mv |
2019-01-01T00:00:00Z 2020-02-11T11:05:36Z 2020-02-11 |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10174/26891 https://doi.org/10.3390/jrfm12020055 http://hdl.handle.net/10174/26891 https://doi.org/10.3390/jrfm12020055 |
url |
http://hdl.handle.net/10174/26891 https://doi.org/10.3390/jrfm12020055 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
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. executive.sumaira@gmail.com efelix@uevora.pt zelia@ubi.pt 256 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.publisher.none.fl_str_mv |
Journal of Risk and Financial Management |
publisher.none.fl_str_mv |
Journal of Risk and Financial Management |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799136652966232064 |