This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Predicting corporate failure: empirical evidence for the UK

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Andreas Charitou
Evi Neophytou
Chris Charalambous
Abstract

The main purpose of this study is to examine the incremental information content of operating cash flows in predicting financial distress and thus develop reliable failure prediction models for UK public industrial firms. Neural networks and logit methodology were employed to a dataset of fifty-one matched pairs of failed and non-failed UK public industrial firms over the period 1988-97. The final models are validated using an out-of-sample-period ex-ante test and the Lachenbruch jackknife procedure. The results indicate that a parsimonious model that includes three financial variables, a cash flow, a profitability and a financial leverage variable, yielded an overall correct classification accuracy of 83% one year prior to the failure. In summary, our models can be used to assist investors, creditors, managers, auditors and regulatory agencies in the UK to predict the probability of business failure.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://taylorandfrancis.metapress.com/link.asp?target=contribution&id=VYGBB5LA33649MBR
File Format: text/html
File Function:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Taylor and Francis Journals in its journal European Accounting Review.

Volume (Year): 13 (2004)
Issue (Month): 3 (September)
Pages: 465-497
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:taf:euract:v:13:y:2004:i:3:p:465-497

Contact details of provider:
Web page: http://taylorandfrancis.metapress.com/link.asp?target=journal&id=100166

Order Information:
Web: http://www.tandf.co.uk/journals/subscription.html

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Peel, M. J. & Peel, D. A., 1988. "A multilogit approach to predicting corporate failure--Some evidence for the UK corporate sector," Omega, Elsevier, vol. 16(4), pages 309-318. [Downloadable!] (restricted)
  2. Andreas Charitou & Nikos Vafeas, 1998. "The Association Between Operating Cash Flows and Dividend Changes: An Empirical Investigation," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 25(1&2), pages 225-249. [Downloadable!] (restricted)
  3. Dambolena, Ismael G & Khoury, Sarkis J, 1980. " Ratio Stability and Corporate Failure," Journal of Finance, American Finance Association, vol. 35(4), pages 1017-26, September. [Downloadable!] (restricted)
  4. Taffler, Richard J., 1984. "Empirical models for the monitoring of UK corporations," Journal of Banking & Finance, Elsevier, vol. 8(2), pages 199-227, June. [Downloadable!] (restricted)
  5. Julian R. Franks & Kjell G. Nyborg & Walter N. Torous, 1996. "A Comparison of UK, US and German Insolvency Codes," Financial Management, Financial Management Association, vol. 25(3), Fall.
  6. Johnsen, Thomajean & Melicher, Ronald W., 1994. "Predicting corporate bankruptcy and financial distress: Information value added by multinomial logit models," Journal of Economics and Business, Elsevier, vol. 46(4), pages 269-286, October. [Downloadable!] (restricted)
  7. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-47, May. [Downloadable!] (restricted)
  8. Peel, MJ & Peel, DA & Pope, PF, 1986. "Predicting corporate failure-- Some results for the UK corporate sector," Omega, Elsevier, vol. 14(1), pages 5-12. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Balcaen S. & Ooghe H., 2004. "Alternative methodologies in studies on business failure: do they produce better results than the classic statistical methods?," Vlerick Leuven Gent Management School Working Paper Series 2004-16, Vlerick Leuven Gent Management School. [Downloadable!]
    Other versions:
  2. Constantin Zopounidis, Michael Doumpos, Fotios Pasiouras, 2007. "Multicriteria Framework for the Prediction of Corporate Failure in the UK," Frontiers in Finance and Economics, Lille Graduate School of Management, vol. 4(1), pages 65-90, June. [Downloadable!]
Statistics
Access and download statistics

Did you know? To receive notification of recent additions to the database, subscribe to the free NEP reports.

This page was last updated on 2009-11-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.