oa Journal of Economic and Financial Sciences - Predicting financial distress using financial and non-financial variables
|Article Title||Predicting financial distress using financial and non-financial variables|
|© Publisher:||University of Johannesburg|
|Journal||Journal of Economic and Financial Sciences|
|Affiliations||1 University of Pretoria and 2 University of Pretoria|
|Publication Date||Apr 2015|
|Pages||243 - 260|
|Keyword(s)||Financial distress continuum, Financial distress prediction, Neural networks and Non-financial variables|
This study attempts to clarify whether using a hybrid model based on non-financial variables and financial variables is able to provide a more accurate company financial distress prediction model than using a model based on financial variables only. The relationship between the model test results and the De la Rey K-Score for the subject companies is tested, employing Cramer's V statistical test. A movement towards a Cramer's V value of one indicates a strengthening relationship, and a movement towards zero is an indication of a weakening relationship. Against this background, further empirical research is proposed to prove that a model combining financial variables with true non-financial variables provides a more accurate company distress prediction than a financial variable-only model. The limited evidence of a strengthening relationship found is insufficient to establish the superiority of the proposed model beyond reasonable doubt.
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