PREDICTING CORPORATE FINANCIAL DISTRESS: AN EMPIRICAL STUDY

Syed Kazmi
D.K. Malhotra
Thomas Jefferson University

ABSTRACT

Although the number of businesses filing for bankruptcy has declined in recent years,
academic and practitioner interest in bankruptcy continues to dominate the literature. This study
uses a multiple discriminant analysis model to analyze the factors that can help explain and predict
financial distress for non-financial firms. This study finds that liquidity ratio, capital productivity,
return on assets, interest coverage ratio, cash generation ratio, and capital adequacy ratios can help
predict financial distress of a firm. To cross-validate the results, use was made of three additional
mutually exclusive samples of the data.

Keywords: Bankruptcy, multiple discriminant analysis, financial distress