Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/218365 
Year of Publication: 
2006
Citation: 
[Journal:] South African Journal of Business Management [ISSN:] 2078-5976 [Volume:] 37 [Issue:] 4 [Publisher:] African Online Scientific Information Systems (AOSIS) [Place:] Cape Town [Year:] 2006 [Pages:] 7-18
Publisher: 
African Online Scientific Information Systems (AOSIS), Cape Town
Abstract: 
The deficiencies in previous research on failure prediction studies were identified from the international literature. This study's purpose is to address these deficiencies while using a new method in developing failure prediction models, namely recursive partitioning (specifically the classification tree algorithm).The deficiencies were addressed as follows:Brute empirism was avoided by focussing on cash flow ratios in combination with certain accrual ratios. Failure was not only defined as bankruptcy, but as any condition where the company cannot exist in future in its current form, therefore including delistings as well as major structural changes. By using the population of listed industrial companies between June 1997 and May 2002, the grey area in-between ‘successful' and ‘bankrupt' was included in developing the models. Every model developed was tested with the help of an independent sample. The different economic cycles were considered by developing different models for a growth and a recessionary period. A combined model was also developed, with the economic cycle as a independent dichotomous variable.When the prediction accuracy for the different classes and in total, of the models developed, is compared with the ex ante probability that an observation will fall in a particular class of the majority (non-failed companies), the prediction accuracy is in every instance higher than the ex ante probability.
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.