Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology

40 Pages Posted: 6 Mar 1998

See all articles by Emel Kahya

Emel Kahya

Rutgers, The State University of New Jersey - Accounting

Panayiotis Theodossiou

Cyprus University of Technology

Date Written: January 1998

Abstract

This paper develops a financial distress model using the statistical methodology of time-series Cumulative Sums (CUSUM). The model has the ability to distinguish between changes in the financial variables of a firm that are the result of serial correlation and changes that are the result of permanent shifts in the mean structure of the variables due to financial distress. Tests performed show that the CUSUM model is robust over time and outperforms other models based on the popular statistical methods of Linear Discriminant Analysis and Logit.

JEL Classification: C22, C32, G32, G34

Suggested Citation

Kahya, Emel and Theodossiou, Panayiotis, Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology (January 1998). Available at SSRN: https://ssrn.com/abstract=64952 or http://dx.doi.org/10.2139/ssrn.64952

Emel Kahya

Rutgers, The State University of New Jersey - Accounting ( email )

Camden, NJ 08102
United States
609-225-6594 (Phone)
609-225-6632 (Fax)

Panayiotis Theodossiou (Contact Author)

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

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