The Prediction of Corporate Financial Distress in Tunisia
29 Pages Posted: 9 Sep 2012
Date Written: September 23, 2009
Abstract
The ability to accurately predict potential corporate distress and to provide early warnings has become of interest not only to managers but also to external stakeholders of a company. In this way, and since there are very distinct differences in the accounting procedures and the quality of financial statements between the firms in Tunisia and those in the other countries, it may not be rational to adopt models developed elsewhere to forecast the potential distressed situations. Hence, the purpose of this study is to examine the effect of logistic regression on bankruptcy prediction accuracy of the Tunisian firms. Applying this statistical technique to a sample of 214 distressed companies, and 1550 "healthy" we determine those financial ratios that establish the differences between these groups, and thus predict possible financial distress. The results demonstrate that profitability, solvency and debt ratios are among the most significant ones for the wholesale and retail companies. For the manufacturing companies, profitability and leverage ratios are the most significant ones.
Keywords: Financial distress prediction, financial ratios, logit model
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