Journal Published Online: 19 March 2010
Volume 38, Issue 5

Analysis of Financial Distress Prediction Models



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.

Author Information

Lee, Li-Tze
Dept. of Accounting Information, Overseas Chinese Univ., Taichung, Taiwan
Fan, Chiang
Dept. of Risk Management and Insurance, Shih Chien Univ., Chung-Shan District, Taipei, Taiwan
Hung, Hsiang-Wen
Dept. of Accounting, National Changhua Univ. of Education, Changhua, Taiwan
Ling, Yu-Chun
Dept. of Finance, Ling Tung Univ., Taichung, Taiwan
Pages: 6
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Stock #: JTE102759
ISSN: 0090-3973
DOI: 10.1520/JTE102759