Firms in Financial Distress, a Survival Model Analysis

37 Pages Posted: 7 Nov 2007

See all articles by Nongnit Chancharat

Nongnit Chancharat

University of Wollongong

Pamela Davy

University of Wollongong

Michael S. McCrae

University of Wollongong, School of Mathematics and Applied Statistics

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: August 20, 2007

Abstract

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

Chancharat, Nongnit and Davy, Pamela and McCrae, Michael S. and Tian, Gary Gang, Firms in Financial Distress, a Survival Model Analysis (August 20, 2007). 20th Australasian Finance & Banking Conference 2007 Paper. Available at SSRN: https://ssrn.com/abstract=1009385 or http://dx.doi.org/10.2139/ssrn.1009385

Nongnit Chancharat

University of Wollongong ( email )

Australia

Pamela Davy

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Michael S. McCrae

University of Wollongong, School of Mathematics and Applied Statistics ( email )

Northfields Ave
Wollongong, NSW 2522
Australia
+61 42 214-015 (Phone)
+61 42 214-297 (Fax)

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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