Distress Classification of Korean Firms

38 Pages Posted: 11 Nov 2008

See all articles by Edward I. Altman

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Young Ho Eom

Yonsei University

Dong Won Kim

The University of Suwon

Multiple version iconThere are 2 versions of this paper

Date Written: 1994

Abstract

This study is an attempt to construct and test a distress classification model for Korean companies. Utilizing a sample of 34 distressed firms from the most recent 1990-1993 period and a matched (by industry and year) sample of non-failed firms, we observe the classification accuracy of two models. Both models utilize measures of firm size, asset turnover, solvency and leverage with one model available for testing only on publicly traded companies and one model is applicable to all public and private entities. We observe excellent classification accuracy based on data from the first two years prior to distress. And, although the accuracy drops off after t-2, the models still provide effective early warnings of distress in many cases. The results of this study are of particular relevance in the current financial market scenario of increased deregulation and greater individual financial institution decisions making.

Suggested Citation

Altman, Edward I. and Eom, Young Ho and Kim, Dong Won, Distress Classification of Korean Firms (1994). NYU Working Paper No. FIN-94-002, Available at SSRN: https://ssrn.com/abstract=1298805

Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

44 West 4th Street
New York, NY 10012
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New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
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Young Ho Eom

Yonsei University ( email )

College of Business and Economics
Seoul 120-749
South Korea
+82 2 361 4193 (Phone)
+82 2 392 0504 (Fax)

Dong Won Kim

The University of Suwon

Suwon-City, Gyeonggi
Korea

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