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Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach

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  • Dinh, Dung V.
  • Powell, Robert J.
  • Vo, Duc H.

Abstract

This study is conducted to investigate the prediction of corporate financial distress based on the Merton (1974) market-based Distance to Default (DD) model over the period from 1997 to 2016 which covers a range of economic financial circumstances, including the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC). The study focusses on the six largest countries in the ASEAN Economic Community (AEC), comprising of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unlike previous studies which focus mainly on bankruptcy, this paper focusses on early warning distress indicators that signal distress well before bankruptcy. This is when firms experience difficulty in servicing debt as measured by interest coverage ratio (ICR) at a firm level and non-performing loans (NPLs) at a country level. Key empirical findings from this paper indicate that the market-based distance-to-default (DD) model is generally a good early warning indicator of financial distress in the following year, particularly for ICR, but that prediction accuracy varies between individual countries in the Southeast Asian region.

Suggested Citation

  • Dinh, Dung V. & Powell, Robert J. & Vo, Duc H., 2021. "Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach," Journal of Asian Economics, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:asieco:v:74:y:2021:i:c:s1049007821000221
    DOI: 10.1016/j.asieco.2021.101293
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    2. Yap, Chia Ying, 2023. "Corporate Governance and Its Determinants : A study on Apex Healthcare Berhad Malaysia," MPRA Paper 119807, University Library of Munich, Germany.
    3. Sun, Xiaojun & Lei, Yalin, 2021. "Research on financial early warning of mining listed companies based on BP neural network model," Resources Policy, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Corporate financial distress; Distance-to-Default; Interest coverage ratio; Non-performing loans; ASEAN;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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