Predicting financial distress using financial and non-financial variables
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Date
Authors
Van der Colff, Francois
Vermaak, Frans N.S.
Journal Title
Journal ISSN
Volume Title
Publisher
University of Johannesburg, Faculty of Economic and Financial Sciences
Abstract
This study attempts to clarify whether using a hybrid model based on non-financial variables and financial variables is able to provide a more accurate company financial distress prediction model than using a model based on financial variables only. The relationship between the model test results and the De la Rey K-Score for the subject companies is tested, employing Cramer’s V statistical test. A movement towards a Cramer’s V value of one indicates a strengthening relationship, and a movement towards zero is an indication of a weakening relationship. Against this background, further empirical research is proposed to prove that a model combining financial variables with true non-financial variables provides a more accurate company distress prediction than a financial variable-only model. The limited evidence of a strengthening relationship found is insufficient to establish the superiority of the proposed model beyond reasonable doubt.
Description
Keywords
Financial distress prediction, Non-financial variables, Financial distress continuum, Neural networks
Sustainable Development Goals
Citation
Van der Colff, F & Vermaak, F 2015, 'Predicting financial distress using financial and non-financial variables', Journal of Economic and Financial Sciences, vol. 8, no. 1, pp. 243-260.