Developing retail performance measurement and financial distress prediction systems by using credit scoring techniques

The current research develops a theoretical framework based on the ResourceAdvantage Theory of Competition (Hunt, 2000) for the selection of appropriate variables. Using a review of the literature as well as to interviews and a survey, 170 potential retail performance variables were identified as possible for inclusion in the model. To produce a relative simple model with the aim of avoiding over-fitting, a limited number of key variables or principal components were selected to predict default. Five credit-scoring techniques: Naive Bayes, Logistic Regression, Recursive Partitioning, Artificial Neural Network, and Sequential Minimal Optimization (SMO) were employed on a sample of 195 healthy and 51 distressed businesses from the USA market over five time periods: 1994-1998, 1995-1999, 1996-2000, 1997-2001 and 1998-2002.Analyses provide sufficient evidence that the five credit scoring methodologies have sound classification ability in the year before financial distress. Moreover, they still remained sound even five years prior to financial distress. However, it is difficult to conclude which modelling technique has the highest classification ability uniformly, since model performance varied in terms of different time scales. The analysis also showed that external environment influences do impact on default assessment for all five credit-scoring techniques, but these influences are weak. These findings indicate that the developed models are theoretically sound. There is however a need to compare their performance to other approaches.To explore the issue of the model's performance two approaches are taken. First, rankings from the study were compared with those from a standard rating system—in this case the well-established Moody's Credit Rating. It is assumed that the higher the degree of similarity between the two sets of rankings, the greater the credibility of the prediction model. The results indicated that the logistic regression model and the SMO model were most comparable with Moody's. Secondly, the model's performance was assessed by applying it to different geographical areas. The original USA model was therefore applied to a new US data set as well as the European and Japanese markets. Results indicated that all market models displayed similar discriminating ability one year prior to financial distress. However, the USA model performed relatively better than European and Japanese models five years before financial distress. This implied that a financial distress model has potentially better prediction ability when based on a single market.Following this result it was decided to explore the performance of a generic global model, since model construction is time-consuming and costly. A composite model was constructed by combining data from USA, European and Japanese markets. This composite model had sound prediction performance, even up to five years before financial distress, as the accuracy rate was above 85.15% and AUROC value was above 0.7202. Comparing with the original USA model, the composite model has similar prediction performance in terms of the accuracy rate. However, the composite model presented a worse prediction utility based on the AUROC value. A future research direction might be to include more world retailing markets in order to ensure the model's prediction utility and practical applicability

The influence of dealers' perceptions on the buying and selling of Islamic bonds

EThOS - Electronic Theses Online ServiceGBUnited Kingdo

An empirical investigation of the lending decisions on small businesses by bank managers in Malaysia

Abstract available: p.

An empirical model for predicting the feasibility of corporate turnaround

The primary objective of this research was to identify the determinants of corporate turnaround feasibility and their effect (in terms of their state of existence and their existence) on the probability of corporate turnaround feasibility in Successful and Non Successful Turnaround Companies. The other objective was the development of an empirical model of the determinants of corporate turnaround feasibility capable of predicting the feasibility of corporate turnarounds. One hundred \u27troubled companies \u27 were identified out of two hundred and eleven publicly listed companies of the Kuala Lumpur Stock Exchange through observations of their share price performance, earnings before interest and tax, earnings after interest and tax and by the Malaysian Z- Score (PNB Score) failure detection model test. They were further demarcated into 57 Successful Turnaround Companies (STC) and 43 Non Successful Turnaround Companies (NSTC). These two groups were then compared on the determinants of turnaround feasibility. The study confirms that the feasibility of corporate turnaround of an organisation is dependent on the existence (exists or non existant) and the state of existence (whether favourable or non favourable) of a set of variables or determinants of corporate turnaround feasibility i.e. Causes of Decline, Severity of Crisis, Company\u27s Historical Strategy, Industry Characteristics, Company\u27s Cost Price Structure, Commitment of Shareholders, Commitment of Bankers, Commitment of Creditors, Commitment of Employees, New Competent Management, Viable Core Business, Bridge Capital and Realistic Turnaround Plan. In identifying the existence and the state of existence of the key determinants of corporate turnaround feasibility in the STC and the NSTC, it was found that the STC had higher occurrences of favourable states of existence for the key determinants than the NSTC. STC\u27s were also found to experience higher occurrences of existence (exists) in the key determinants compared to the NSTC. A \u27Corporate Turnaround Feasibility Intensity Model\u27 was developed to test corporate turnaround feasibility intensity level. Subsequently, the empirical model or the multivariate logistic regression model was then applied to finalise and reaffirm the feasibility of the corporate turnaround of the organisation. The qualitative and empirical models complement each other in their application, or used on their own can test the feasibility of corporate turnaround. The availability of both qualitative and empirical models above to test and to predict the feasibility of corporate turnaround from this research can help solve one of the biggest dilemmas facing numerous shareholders, top management, management consultants and bankers, namely, deciding whether to go ahead with the turnaround process or not. The models can help save costly errors in terms of money, labour cost, psychological turmoil, time and wasteful resources due to wrong decision making. They also constitute a new contribution to knowledge

The financing problems of small and medium-sized manufacturing enterprises in Jordan

EThOS - Electronic Theses Online ServiceGBUnited Kingdo

The Usefulness of Funds Flow Statements: An Empirical Study of Hong Kong Banks' Loan Officers' Use of Published Company Accounts

Funds flow statements were part of the published accounts of most companies in most jurisdictions in the last two decades. In the USA and a few other countries, they have been replaced by cash flow statements. Before other countries, including the UK, follow the US lead, it is important to gather and assess evidence on the usefulness of the funds statement to see if the arguments for its replacement by the cash flow statement are well founded. In essence, the usefulness of the funds flow statement is a matter of its ability to enable its readers to make better, or possibly faster, judgments about a firm's changes in financial position than they would make in the absence of that statement. The research reported in this thesis addresses the usefulness of the funds statement to a group of users especially concerned with changes in the financial position of companies with whom members of the group do business. Banks employ loan officers and credit analysts to vet applications for new loans, and this group of people is therefore likely to appreciate information useful to them in assessing the ability of applicants to meet their actual and prospective financial obligations. Such a group based in Hong Kong would be exposed to accounts prepared under all kinds of different national formats and should not be unduly fixated on the format of any one nation. Such assumptions were the basis of the research. A factorial ANOVA research design was used with 116 Hong Kong bank loan officers in 15 sets to see if the provision of funds flow statements and cash flow statements in a variety of formats improved their speed or accuracy in answering simple calculation-based or judgment-based questions concerning the accounts. Order effects were controlled by shuffling question order. Accounts difficulty effects were controlled by providing the accounts in two matched sets of equivalent processing difficulty. Subject selection effects were controlled through random assignments of subjects to accounts sets. It was found that funds statements marginally improved accuracy but greatly increased processing time. Cash flow statements performed no better than funds flow statements in either respect. An information load explanation is discussed for these results

A comparative study of late-imperial and early-republican private property rights institutions, as measured by their effects on Shanghai's early financial markets

This research presents an analysis of Shanghai's two separate, parallel but simultaneously coexisting institutional environments, one operating under control of the Chinese central government, and the other under an extraterritorial system defined by foreign (mainly British, American, and French) political and legal conceptualisations. This institutionally dichotomic condition characterised Shanghai for over one hundred years, from the mid-nineteenth to midtwentieth centuries, throughout the course of amid tumultuous political upheaval shaping the domestic political landscape. The nature of these parallel institutional environments in large part reflected the period's political events; the era's political turmoil, via their impact on the nature of institutional protections on private property, contract, and investor rights, concomitantly helped determine Shanghai's economic development, including the development of the city's financial markets. While China's broader domestic institutional framework over this period has received considerable attention in the literature, there exists debate regarding the nature of the strength and efficacy of the domestic institutional environment, particularly in regard to issues pertaining to state capacity and protection of private property rights. This debate is reflective of similar debate within Chinese economic history, one that has portrayed China's late-imperial and republican economic growth as signified mostly by failure, yet with recent revisionist work providing intriguing empirical evidence suggesting considerably stronger economic growth to have occurred throughout the period. In a parallel manifestation, a robust revisionist literature has presented an effective challenge to the standard conventional literature has tended to view the domestic institutional environment over the period as inherently weak and ineffective. In this research project, we utilise Shanghai's unique dualistic institutional setting over this period to help address this debate in the literature. Specifically, we identify how differences between these two institutional frameworks impacted economic actors' behaviour, with a particular emphasis on the revealed preferences displayed by investors acting within Shanghai's early financial markets. To undertake our analysis, we construct an original dataset based on archival records of bond and equity prices that traded on Shanghai's early stock exchanges. The market pricing and trading activity associated with similarly constructed financial instruments, differing primarily in terms of the issuer –whether a domestic or extraterritorial entity– reflect the differing perceptions that contemporaneous investors ascribed to the broader institutional environments. This economic and financial historical research project therefore utilises analysis of contemporaneous investor perceptions to examine not only Shanghai's early financial markets, but also to draw broader conclusions regarding Shanghai's dual institutional environment from a comparative perspective, as well as providing a new viewpoint on a long-standing debate in the literature regarding the efficacy and strength of China's domestic institutional foundations over the late-imperial and early republican time period

Aligning interests : the impact of CEO compensation schemes on corporate executive behaviour and the cost of debt : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance, Massey University, Palmerston North, New Zealand

A key element of corporate governance is executive compensation. This study examines the effectiveness of two compensation methods for chief executives: inside debt and vesting equity. In essay one, inside debt aligns management incentives with inside bondholder incentives (since they both hold debt), resulting in less risky corporate policies and reducing corporate risk-taking. This study shows empirically that inside debt is associated with less problematic situations (i.e., small earnings declines), less real activity spending cuts (such as marketing and R&D research), and lower yield spreads on corporate bonds. In essay two, company executives and bond investors are concerned about short-term prices. When executives’ compensation includes vesting equity, their interests are aligned. In this study, vesting equity reduces the cost of debt. Among the two components of vesting equity, the option lowers costs of debt, while stock keep costs high. The results suggest investors view vesting options as the best way to align executives’ and bondholders’ interests. Vesting equity may also reduce risk-taking activities, affecting bond prices. In summary, the results show that bondholders are aware of the risk-taking and risk-avoidance incentives created by executive compensation schemes. Inside debt and vesting equity strengthen and align executive interests with those of inside and external bondholders