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Predicting the Fate of Insolvent Companies in Administrative Receivership - Using Statistical and Neural Classification Methods

Loughborough University Banking Centre Research Series 95/1995

Posted: 3 Jun 1998  

Robert Hamilton

Loughborough University - Business School

J. Barry Howcroft

Loughborough University - Business School

Keith Pond

Loughborough University - Business School

Zhonghua Liu

Jiangsu TV University at Nanjing, China

Date Written: December 1995

Abstract

The paper focuses upon businesses which are in crisis and attempts to assess whether financial variables can be identified and used to discriminate between insolvent companies which can be rescued and those which cannot. In attempting to resolve this question, the research utilises a sample of companies placed into administrative receivership and applies four classification techniques: two statistical methods - Linear Discriminant Analysis and Logistic Regression; and two neural nets - the Backpropagation net and the Learning Vector Quantization net. The performance of the four different classification procedures was quite comparable and revealed estimated classification rates of between 70 - 80%. The analysis also identified six discriminating variables, but three of these - debtor turnover, gearing ratio and current ratio - were particularly important in predicting outcomes.

JEL Classification: C25, C88, G21, G88, G38

Suggested Citation

Hamilton, Robert and Howcroft, J. Barry and Pond, Keith and Liu, Zhonghua, Predicting the Fate of Insolvent Companies in Administrative Receivership - Using Statistical and Neural Classification Methods (December 1995). Loughborough University Banking Centre Research Series 95/1995. Available at SSRN: https://ssrn.com/abstract=7560

Robert Hamilton

Loughborough University - Business School ( email )

Ashby Road
Loughborough
Nottingham NG1 4BU, LE11 3TU
Great Britain

J. Barry Howcroft

Loughborough University - Business School ( email )

Ashby Road
Loughborough
Nottingham NG1 4BU, LE11 3TU
Great Britain

Keith Pond (Contact Author)

Loughborough University - Business School ( email )

Ashby Road
Loughborough Banking Centre
Leicestershire LE11
United Kingdom
+44 1509 223290 (Phone)
+44 1509 223962 (Fax)

Zhonghua Liu

Jiangsu TV University at Nanjing, China

Nanjing
China

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