This study develops five multinomial logit models to classify firms into one of four states of financial health: healthy, bonds downgraded to a "C" rating, bankruptcy protection under Chapter 11, and liquidation. The predictive variables are selected from fourteen accrual accounting ratios and eight broadening variables (cash flow data, dividend data, stock price data, industry data, and economic data). Each of the five models predicts the financial health of firms one, two, and three years in advance. A holdout sample from a different time period is employed to validate the results. The estimation sample and holdout sample consist of over 400 firms each. / Contributions of the study stem from several sources. First, the use of a broader information set permitted the evaluation of several predictor variables, such as the cumulative market adjusted return, not employed in previous research. Second, the use of factor analysis led to the finding that predictive models which employ a subset of the original predictor variables (original variable models) did a much better job classifying healthy firms than did those models which used factor scores as predictors (factor score models). In contrast, factor score models clearly outperformed original variable models in classifying financially distressed firms. Third, the need for better information sources regarding the precise date of Chapter 11 filing or the announcement of the intent to liquidate the firm was revealed. Greater emphasis in comparison of this date to the date of release of financial statements sometimes resulted in forcing the model to forecast the actual bankruptcy or liquidation event one year farther out than implied by the model. / Source: Dissertation Abstracts International, Volume: 52-11, Section: A, page: 3993. / Major Professor: Thomas F. Schaefer. / Thesis (Ph.D.)--The Florida State University, 1992.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_76542 |
| Contributors | Grant, Charles Terrell., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 160 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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