Firms in Financial Distress, a Survival Model Analysis
37 Pages Posted: 7 Nov 2007
Date Written: August 20, 2007
The paper aims to a) identify the probability of corporate survival in a given time frame based on the state of the financial health of a company and b) investigate the effect of financial ratios, market based variables and company specific variables (including company age, size and squared size) on corporate financial distress. A sample of 1,117 publicly listed Australian companies was examined over the period 1989 to 2005 using a survival analysis technique in Cox proportional hazards form. The results support the usefulness of financial ratios, market based variables and company size as predictors of financial distress. Financially distressed companies have lower profitability, higher leverage, lower past excess returns and larger size compared to active companies. However, company age lack significance in explaining financial distress.
Keywords: Financial Distress, Survival Analysis, Cox Proportional Hazards Model
JEL Classification: G32, G33
Suggested Citation: Suggested Citation