Extending Forecasting Horizon by Using Market Values to Identify Financially Distressed Firms.

详细信息   

• 作者：Schmuck ; Ronald M.
• 学历：Ph.D.
• 年：2014
• 毕业院校：Northcentral University
• ISBN：9781303723612
• CBH：3578566
• Country：USA
• 语种：English
• FileSize：23705509
• Pages：531

文摘

This panel study addressed the use of market-valued ratios in multivariate discriminant analysis (MDA) prediction models,a fresh approach for corporate stakeholders seeking to identify financially distressed companies with an extended time-to-failure horizon. While researchers had begun to identify failing companies using pre-failure conditions and to investigate the effect of using market-valued ratios in their bankruptcy prediction models,they had yet to use both pre-failure conditions and market-valued ratios in an MDA model prior to this study. For the models to be created,reported values,stock prices,and shares outstanding were collected from the financial statements of 370 publicly traded American manufacturing companies from 1997 to 2008. Seven ratios known to be associated with financial distress were chosen. After reported values were converted to market values using stock prices,regression procedures were applied to generate a market-valued MDA model and a book-valued MDA model,which were then used to classify firms as financially distressed or not financially distressed. Wilcoxon signed-rank tests were performed on the resulting annual classification accuracy rates. The rates achieved using the models to identify both types of entities were significantly different at p＝＜.05,but the market-valued MDA model was only superior to the book-valued MDA model when used to identify financially distressed firms. The low 10-year classification accuracy rate of 33.44% attained when the market-valued MDA model was used in this instance did exceed the rate of 28.71% attained using the book-valued MDA model. Next,the time-to-failure horizon of each bankrupt firm was calculated by subtracting the year in which the firm was identified as financially distressed from the year in which it declared bankruptcy. The average forecast horizon of bankrupt firms was 239 years； thus,combining pre-failure conditions such as declining stock prices with market-valued ratios in an MDA model failed to extend the average time-to-failure horizon beyond the historically limited forecast horizon of less than three years. These results cast doubt on the efficient market theory because of the erratic stock behavior that was noted relative to negative earnings and suggests a change in conditional definition should further research be conducted.