Industrial Sector and Financial Distress

28 Pages Posted: 22 Aug 2006

See all articles by Dah-Kwei Liou

Dah-Kwei Liou

Chihlee Institute of Technology - Department of Finance and Banking

Malcolm Smith

Edith Cowan University - School of Accounting, Finance and Economics

Date Written: June 2006

Abstract

A number of authors have noted that industrial sector is a significant factor in the design and construction of failure prediction models, suggesting that organisational structures dictate the construction of separate models for different sectors. However, most modellers have been content to amalgamate sub-sectors of the 'manufacturing' classification (often because of otherwise facing sample size difficulties) to produce a single manufacturing sector model. This paper examines differences that exist across the manufacturing sector in order to identify those sub-sectors for which such amalgamation is inadvisable. By examining the correlation of traditional financial ratios with sector performance, the paper identifies sub-sectors which might make models vulnerable to error.

Keywords: industrial sector, manufacturing industry, failure prediction, Z-score

Suggested Citation

Liou, Dah-Kwei and Smith, Malcolm, Industrial Sector and Financial Distress (June 2006). Available at SSRN: https://ssrn.com/abstract=925595 or http://dx.doi.org/10.2139/ssrn.925595

Dah-Kwei Liou

Chihlee Institute of Technology - Department of Finance and Banking ( email )

Taipei, 200
Taiwan

Malcolm Smith (Contact Author)

Edith Cowan University - School of Accounting, Finance and Economics ( email )

100 Joondalup Drive
Joondalup, WA 6027
Australia
08 6304 5263 (Phone)

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