A classic statistical model developed towards predicting financial distress

Abstract

To date there has been significant research on the topic of financial distress prediction, due to its relevance to various stakeholders. Beaver (1966), Altman (1968) and Ohlson (1980) are generally regarded as the pioneers in this field of study, despite heavy criticism their models are widely accepted and used. Studies by Grice & Ingram (2001); Grice & Dugan (2001) and Sudarsanam & Taffler (1995) have shown that these models require to be updated regularly with new variables and coefficients due to various factors. This study proposes to add to the body of knowledge by developing a distress prediction model using a classic statistical method and financial ratios, calculated on published company data of organisations listed on the Johannesburg Stock Exchange.