ISSN: 1945-7553
CODEN: JTEVAB
Published Online: 19 March 2010
Page Count: 6

Analysis of Financial Distress Prediction Models

Lee, Li-Tze
Dept. of Accounting Information, Overseas Chinese Univ., Taichung,

Fan, Chiang Ku
Dept. of Risk Management and Insurance, Shih Chien Univ., Chung-Shan District, Taipei,

Hung, Hsiang-Wen
Dept. of Accounting, National Changhua Univ. of Education, Changhua,

Ling, Yu-Chun
Dept. of Finance, Ling Tung Univ., Taichung,

(Received 25 September 2009; accepted 8 February 2010)

Abstract

The purpose of this study is to evaluate financial and non-financial variables using the bankruptcy prediction model. Considering Taiwan companies listed between 2001 and 2005, the estimation sample comprises 140 firms (70 failing and 70 non-failing), and the validation sample comprises 52 firms (26 failing and 26 non-failing). In contrast to previous studies, this paper provides a corporate governance index as non-financial variables to predict financial distress along with financial index. Logistic regression is applied to examine these samples for 3 year data prior to business failure. In the estimation sample, the indexes combining both financial and corporate governance indexes gave the most accurate predictions. In the validation sample, the financial variables yielded the most accurate predictions.

Keywords:
financial distress, corporate governance, logistic regression

Paper ID: JTE102759
DOI: 10.1520/JTE102759
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