Predicting financial distress in publicly-traded companies

Several models for forecasting bankruptcy have been developed over the years, one of the reasons for which is the important part it plays in decision-making. However, forecasting a company's bankruptcy leaves a very short time for stakeholders to change the situation. It is in this context that...

Full description

Saved in:

Bibliographic Details
Published in:	Revista Contabilidade & Finanças Vol. 28; no. 75; pp. 390 - 406
Main Authors:	Rezende, Felipe Fontaine, Montezano, Roberto Marcos da Silva, de Oliveira, Fernando Nascimento, Lameira, Valdir de Jesus
Format:	Journal Article
Language:	English
Published:	São Paulo Departamento de Contabilidade - FEA/USP 01-09-2017 Universidade de São Paulo, FEA, Departmento de Contabilidade e Atuária Universidade de São Paulo
Subjects:	Accuracy Bankruptcy Decision making financial distress Forecasting GDP Gross Domestic Product Hypotheses Judicial opinions logistic regression Macroeconomics panel data prediction Public companies Regression analysis Studies Variables Brazil
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	Several models for forecasting bankruptcy have been developed over the years, one of the reasons for which is the important part it plays in decision-making. However, forecasting a company's bankruptcy leaves a very short time for stakeholders to change the situation. It is in this context that this paper arises in order to develop a model for predicting financial distress, which is identified as a step prior to bankruptcy. The predictive model uses the logistic regression technique with panel data and a sample of Brazilian publicly-traded companies with shares listed on the Sao Paulo Stock, Commodities, and Futures Exchange between 2001 and 2014. As well as financial variables, the final model includes market expectations (macroeconomic) and sector variables. These variables are statistically tested and the hypothesis is confirmed that they improve the accuracy of the model. The research identified the existence of financial distress in 96% of the companies that went bankrupt. In addition, the relationship between the phenomena of bankruptcy and financial distress is verified, using financial and macroeconomic explanatory variables, 'l he results demonstrate that most (83%) of the explanatory variables in the model for predicting bankruptcy are also present in the model for predicting the phenomenon of financial distress. The expected gross domestic product variables and the quick ratio, asset turnover, and net equity over total liabilities financial variables are statistically significant in predicting both phenomena. With this evidence, the study suggests the use of the concept of financial distress as a stage prior to bankruptcy and provides a model for predicting financial distress with 89% accuracy when applied to publicly-traded companies in Brazil in the period examined. Keywords: financial distress, bankruptcy, prediction, logistic regression, panel data.
ISSN:	1519-7077 1808-057X 1808-057X
DOI:	10.1590/1808-057x201704460