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Identification of corporate distress in UK industrials: a conditional probability analysis approach

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Abstract:

Multivariate discriminant analysis (MDA) has long been used to classify failing and non-failing firms with high accuracy rates, although a number of methodological flaws are well known. The alternative approach based on conditional probability analysis (CPA) models have been applied to forecast mergers and acquisitions and extended to the prediction of corporate failure. This is used here to distinguish between distressed and non-distressed companies in the UK industrial sector for the period 1985-1994. Results show that the CPA model is both efficient and consistent, has high accuracy levels and avoids the biased sampling problems that have been identified in MDA studies.

Document Type: Research Article

DOI: https://doi.org/10.1080/0960310042000176344

Affiliations: 1: Department of Banking and Finance National Chi-Nan University 1 University Road Pu-Li Nantou 545 Taiwan 2: Management Centre School of Social Science and Public Policy King's College London 150 Stamford St London SE1 9NN UK

Publication date: 2004-01-15

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