The development of a model useful in determining the propensity of private colleges toward bankruptcy through the use of financial variables and discriminant analysis

Vita.The purpose of this study was to develop a model to aid college administrators and others in the process of determining the propensity of their institutions toward bankruptcy. First, a review of management techniques in use determined that these techniques were helpful in administration and financial planning but not in determining when a financial crisis was leading to propensity toward bankruptcy. Financial data were collected from 102 open institutions with the base year being 1972-1973 and the future year 1973-1974. Financial data were also collected from 29 closed institutions with the base year and future year being the last two fiscal reports that were available. A discriminant analysis was run on the base and future years of the data. Seven variables were found to be correlated and the best indicators of the discriminant analysis function. These seven variables had an F-ratio of 4.2 which is significant at the .01 level. The discriminant function successfully classified 25 bankrupt institutions as bankrupt and 70 nonbankrupt institutions as nonbankrupt. The cut-off z score, which is half-way between the mean discriminant scores of the two groups, separates bankrupt from nonbankrupt institutions is .000295