Abstract

Financial distress can be the reflection of corporation's management condition. Consequently the distress score
of corporations should be considered as a new predictor variable in predicting the financial distress.
The analysis of ROC curve, among the models employed to compare the effectiveness of different statistical
models, is often used in the fields of psychology and bio-physics in order to summarize the discriminatory of a
diagnostic test and also to compare the performance of different models for binary outcomes. Therefore,
concerning the topic of this research and the use of ROC curves in predicting the financial distress of
corporations, we use logit models to study the financial distress of the manufacturing corporations in Tehran
Stock Exchange. We also compare the accuracy of the prediction method with financial distress score variable to
the method without this variable.
Concerning the accuracy of prediction and classification, the results of this research show that the accuracy of
prediction can be enhanced by using the distressed score, gained from DEA, as a new predictor variable in
predicting the financial distress.

This work is licensed under a Creative Commons Attribution 4.0 License.