Bankruptcy prediction during the IMF crisis: Evidence from Malaysian listed industrial companies

This paper develops bankruptcy prediction model of considerable efficiency for firms listed and traded in a small developing economy. New findings reported in this paper help extend bankruptcy prediction literature to a different market setting. We find there are three relevant variables: total liabilities; current asset turnover; and cash ratios. The model correctly classified about nine-tenth of failed and non-failed firms in the original and holdout samples. The model predicts failure four years ahead. We also introduce a further sample comprising of those firms that had experienced financial distress between 1997-1998 (during the Asian Financial Crisis period) to assess model superiority. The predictive accuracy of the model reveals that it was significantly better than chance. Thus, these findings are somewhat different from those in the literature