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A Comparative Study of Australian and Korean Accounting Data in Business Failure Prediction Models

Author

Listed:
  • Young-Won Her

    (Department of Economics and Finance, La Trobe University)

  • Chongwoo Choe

    (Department of Economics and Finance, La Trobe University)

Abstract

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 inter temporally 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.

Suggested Citation

  • Young-Won Her & Chongwoo Choe, 1999. "A Comparative Study of Australian and Korean Accounting Data in Business Failure Prediction Models," Working Papers 1999.07, School of Economics, La Trobe University.
  • Handle: RePEc:ltr:wpaper:1999.07
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    Cited by:

    1. Ijaz, Muhammad Shahzad & Hunjra, Ahmed Imran & Hameed, Zahid & Maqbool, Adnan & Azam, Rauf i, 2013. "Assessing the Financial Failure Using Z-Score and Current Ratio: A Case of Sugar Sector Listed Companies of Karachi Stock Exchange," MPRA Paper 60787, University Library of Munich, Germany.
    2. Shuk-Wern Ong & Voon Choong Yap & Roy W.L. Khong, 2011. "Corporate failure prediction: a study of public listed companies in Malaysia," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 553-564, May.

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