Industrial Sector and Financial Distress
28 Pages Posted: 22 Aug 2006
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
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