Insolvency Prediction Model Using Multivariate Discriminant Analysis and Aartificial Neural Network for the Ffinance Industry in New Zealand

Kim-Choy Chung, Shin Shin Tan, David K. Holdsworth

Abstract


Models of insolvency are important for managers who may not appreciate how serious the financial health of their company is becoming until it is too late to take effective action. Multivariate discriminant analysis and artificial neural network are utilized in this study to create an insolvency predictive model that could effectively  predict any future failure of a finance company and validated in New Zealand . Financial ratios obtained from corporate balance sheets are used as independent variables while failed/non-failed company is the dependent variable. The results indicate the financial ratios of failed companies differ significantly from non-failed companies. Failed companies were also less profitable and less liquid and had higher leverage ratios and lower quality assets.

Full Text: PDF DOI: 10.5539/ijbm.v3n1p19

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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