Forecasting Financial Problems in Emerging Capital Markets

15 Pages Posted: 16 Aug 2006

See all articles by Zulkarnain Muhamad Sori

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia

Annuar Nassir

University Putra Malaysia

Date Written: August 2006

Abstract

The advent of the Asian Financial Crisis (AFC) in the Southeast Asia in 1997 is an appealing case for research work in assessing corporate financial distress. From international perspective, AFC is a product of contagion effect that spread from Thailand and consequently to the other Asian countries. Domestically, the AFC has resulted a sudden economic slump and corporate failures in these economies. This paper examines the corporate failure before the 1997 Asian Financial Crisis in three emerging capital markets namely Malaysia, Singapore and Thailand, and develops, tests, and analyses a model for classifying and predicting financial distress. A failure classification model based on multiple discriminant analysis was utilised to classify listed corporations from these countries for the 1980 to 1996 period. The model is tested on a sample of 33 Malaysian, 17 Singaporean and 52 Thailand failed firms and similar number of non-failed firms in the respective countries as a control sample. The failure prediction model developed successfully discriminates between failed and non-failed listed firms at the rate of 86%, 82% and 71% of Malaysian, Singaporean and Thailand firms respectively. Further validation of findings show that the predictive accuracy was significantly better than chance.

Keywords: Corporate Failure, Financial Ratios, Prediction Model, Discriminant Analysis

JEL Classification: M40

Suggested Citation

Muhamad Sori, Zulkarnain and Abdul Hamid, Mohamad Ali and Nassir, Annuar, Forecasting Financial Problems in Emerging Capital Markets (August 2006). Available at SSRN: https://ssrn.com/abstract=924102 or http://dx.doi.org/10.2139/ssrn.924102

Zulkarnain Muhamad Sori (Contact Author)

INCEIF, The Global University of Islamic Finance ( email )

Lorong Universiti A
Kuala Lumpur, Kuala Lumpur 59100
Malaysia
+60376514173 (Phone)
8 (Fax)

HOME PAGE: http://www.inceif.org/

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

Annuar Nassir

University Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

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