The purpose of this paper is to evaluate comparability of Australian and Korean accounting data in their predictive power and usefulness in business failure prediction models. To this end, the predictive ability of total 52 individual financial ratios is assessed for the sample from each country, along with three different significance tests (univariate approach). In addition, four alternative multivariate models, i.e., linear discriminant model, quadratic discriminant model, logit model, and probit model, are also constructed (multivariate approach). The classification results from each multivariate model are then compared to assess the robustness of our findings. Main findings are: (i) in most cases, Australian financial ratios have more information content than their Korean counterparts in failure prediction; (ii) ROE (return on equity), NI/TTA (Total Liabilities/Total Tangible Assets), CF/INT (Cash Flow/Interests) are the most efficient and intertemporally stable univariate discriminators for the Australian case and EBIT/INT (Earnings before Interest and Taxes/Interests), RE/TTA (Retained Earnings/Total Tangible Assets) for the Korean case; (iii) compared with the results from an univariate approach, the multivariate approach in the Australian case made only marginal improvement of prediction accuracy, while the Korean multivariate models increased their prediction accuracy significantly.
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Paper provided by La Trobe - Department of Economics in its series Papers with number
99.07.
Find related papers by JEL classification: M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General G30 - Financial Economics - - Corporate Finance and Governance - - - General D20 - Microeconomics - - Production and Organizations - - - General