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Financial Distress Prediction in China

  • Jianguo Chen

    ()

    (Department of Finance, Banking and Property, Massey University, Private Bag 11-222, Palmerston North, New Zealand)

  • Ben R. Marshall

    ()

    (Department of Finance, Banking and Property, Massey University, Private Bag 11-222, Palmerston North, New Zealand)

  • Jenny Zhang

    ()

    (Bank of New Zealand Cards, Level 14, 80 Boulcott Street, Wellington, New Zealand)

  • Siva Ganesh

    ()

    (IIST (Statistics), Massey University, Private Bag 11-222, Palmerston North, New Zealand)

Registered author(s):

    We use four alternative prediction models to examine the usefulness of financial ratios in predicting business failure in China. China has unique legislation regarding business failure so it is an interesting laboratory for such a study. Earnings Before Interest and Tax to Total Assets (EBITTA), Earning Per Share (EPS), Total Debt to Total Assets (TDTA), Price to Book (PB), and the Current Ratio (CR), are shown to be significant predictors. Prediction accuracy achieves a range from 78% to 93%. Logit and Neural Network models are shown to be the optimal prediction models.

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    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 09 (2006)
    Issue (Month): 02 ()
    Pages: 317-336

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    Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:02:p:317-336
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