Detecting Financial Distress : Discriminant Versus Logistic Regression Analysis

This study examines two statistical tests which are discriminant analysis and the logit model to predict the probability of financially distress companies. In addition this study also utilizes the usage of financial ratios as a predictor of a company in a state of financial distressed. The findings show that the logit model shows better prediction accuracy than the discriminant analysis. The logit model correctly classified 91.5 percent of the companies in the estimation sample and 90 percent for the holdout sample. However for discriminant mode the overall accuracy rate fix the estimation and the holdout samples are 84.5 percent respectively. For discriminant analysis there are three factors found to have significant discriminating power current ratio net income to total assets and sales to current assets. Similarly logit model also identified three factors but two of the factors (shareholders' equity to total liabilities and cashflow from financing to total liabilities) are different from those found in discriminant analysis. The only factor which is identified in both models is net income to total assets. The findings give clear understanding of the relevant factors that can cause financial distress. Hence companies could take immediate actions to avoid failure to the company

Detecting financial distress

This paper examines two types of statistical tests, which are multiple discriminant analysis (MDA) and the logit model to detect financially distressed companies. Comparison between the two statistical tests is implemented to identiy factors that could differentiate financially distressed companies from the healthy company. Among the fifteen explanators, M D A shows that the current ratios, net income to total asset, and sales to current asset, are the indicators of financially distressed companies. Other than net income to total asset, the logit model provides two different ratios which are shareholders’filnd to total liabilities, and cash flow from financing to total liabilities, to identi@ financially distressed companies. It zuasfound that the logit model could accurately predict 91.5% of the estimation sample and 90% of the holdout sample whereas the discriminant model shows an overall accuracy rate of 84.5% and 80% for the estimatiorl and the holdout sample respectively

The cost of international reserves and external debt: Evidence from Malaysia

This study aims to empirically examine the cost of Malaysia’s decision to jointly hold reserves and sovereign debt after the 1997 Asian financial crisis. This paper provides evidence that Malaysia should hold international reserves of at least 4.96 months of imports, which is higher than the conventional rule of thumb of 3 months of imports. However, in its current international reserves position Malaysia could finance 9.3 months of retained imports, which is far above the optimal level

Modul pengurusan penyelidikan

Modul 1 akan membincangkan dan memberi penjelasan kepada perkara-perkara berikut:-Penyelidikan dan lnovasi, Prosedur Penyelidikan Sistematik, Kriteria-kriteria Penyelidikan, Etika dalam Penyelidika

Investigation of optimal capital structure in Malaysia: A panel threshold estimation

Purpose ‐ The purpose of this paper is to investigate the effect of leverage on Malaysian listed firms' value and the optimal level of debt at which a firm could maximize its value.Design/methodology/approach ‐ The authors employ an advanced panel threshold regression estimation developed in 1999 by Hansen that will indicate whether there are positive and negative impacts of leverage on firm value.This estimation procedure has the advantage of quantifying the threshold level of debt as compared to the ad hoc classification procedure of splitting the sample. Findings ‐ The results show that debt is only pertinent to the firm value up to a threshold level of 64.33 per cent.Additional debt beyond the threshold level does not add to a firm's value. The appropriate level of debt should be applied, which would thus maximize the firm and stockholders' value. Originality/value ‐ To the best of the authors' knowledge, this is the first study to look at this issue for Malaysian listed firms.The findings from this paper may provide a critical analysis of the usage of debt in firms' capital structure.An excessive level of debt could lead to a debt overhang situation and insolvency at the microeconomic firm level; this could eventually could cause vulnerability in financial systems and thus lead to the financial catastrophes

FDI and economic growth: New evidence on the role of financial markets

This study uses a threshold regression model and finds new evidence that the positive impact of FDI on growth "kicks in" only after financial market development exceeds a threshold level.Until then, the benefit of FDI is non-existent

Macroeconomic determinants of corporate failures in Malaysia

This research investigates the long-run dynamic linkages between the corporate failures in Malaysia and selected macroeconomic variables by employing the Autoregressive Distributed Lag (ARDL) bound test, a robust and recent time series technique which is applicable irrespective of whether the regressors are I(0) or I(1).Corporate failure rate is the ex-ante variable in a linear function model with five explanatory macroeconomic variables. A dummy variable to decipher the corporate failure rates during the Asian financial crisis was also included. The results show that corporate failure rates in Malaysia are significantly and positively associated with the average lending rate, inflation rate and, gross domestic product (GDP) in the long-run

Factors Contributing to Financially Distressed Companies in Malaysia

By using a total of 52 distressed and non-distressed listed companies during the period 1990 to 2000, debt to total assets was found to be significant in predicting distressed companies for the multiple discriminant analysis (MDA), logit and hazard models. It appears that the higher the debt, the higher is the probability of defaulting among the financially distressed companies. MDA identified net income growth as another predictor whereas the logit and hazard model found that return on asset (ROA) to be an important predictor. Nevertheless, the sign of the ROA coefficient differred between the two models. Furthermore, company size was also identified as a contributing factor to financially distressed companies for the hazard model. 

Sovereign credit ratings and macroeconomic variables: An application of bounds testing approach to Malaysia

This paper aims to investigate the short- and long-run macroeconomic determinants of sovereign credit ratings in developing countries.Malaysia is used as a case study.This study employed quarterly data from 1991 to 2004.We apply a recently developed time series technique called ‘Auto-Regressive Distributed Lag’ (ARDL) [Pesaran, Shin, and Smith,Journal of Applied Econometrics, 2001] which has taken care of a major limitation of the conventional cointegrating tests in that they suffer from the pre-test biases.Based on the above rigorous methodology, our evidence tends to suggest that both in the short-and long- run, Debt ratios such as (Debt to GDP, Debt Service to Reserve) and US Treasury Bill rate (3-months) appear to have had a significant impact on Malaysia’s sovereign credit ratings.The findings of the study tend to indicate that Malaysia’s short- and long-term ability to pay its debt contain information for the prediction of her credit ratings.These findings are plausible and have strong policy implications for developing countries like Malaysia

Market reactions to financial distress announcements: Does the market react differently to different outcomes?

We examine market reactions to the financial distress announcements of listed firms in Malaysia.The sample consists of 236 financially distressed companies between 2001 and 2014. We investigate whether the market differentiates between the subsequently re-emerged and subsequently delisted firms at the time of financial distress announcements.The results suggest that there is evidence of differing reactions to distress announcements according to firms' outcomes. These results suggest that, at the time of financial distress announcements, the capital market differentiates firms based on the expected outcomes of the distress, showing that the market has insights into the expected outcomes of the financial distress