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Paper Information

Journal:   THE FINANCIAL ACCOUNTING AND AUDITING RESEARCHES   APRIL 2009 , Volume 1 , Number 1; Page(s) 33 To 42.
 
Paper: 

APPRAISING THE RELATIONSHIP BETWEEN FINANCIAL DISTRESS PREDICTION MODELS IN IRAN (THE CASE STUDY: ALTMAN MODEL AND DEAKIN MODEL)

 
 
Author(s):  NIKOOMARAM HASHEM, POURZAMANI ZAHRA
 
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Abstract: 
Interest in the ability to predict financial distress has produced a considerable body of research in accounting and finance over the last 40 years. Variable selection in financial distress studies is commonly based upon suggestions in the literature, the success of variables in earlier studies, or the selection of a large set of variables with an accompanying data reduction procedure in order to maximize predictive ability or some other statistical criteria. The resulting consequence of ad hoc variable selection in financial distress studies is that consensus does not exist on a definitive set of variables that distinguish between distressed and non-distressed firms. Despite nearly 30 years of research in the area, the absence of an inter-correlational structure among alternative variable sets highlights the atheoretical nature of financial distress research.
The study selects two bankruptcy studies and employs canonical correlation analysis to examine the relationships that exist between two variable sets. If different variable sets exhibit a strong relationship and alternative variable sets can predict each other, then heterogeneous variable sets capture common information. The research findings indicate that the relationships between the alternative variable sets are very weak and alternative variable sets do not represent similar financial relationships. Ad hoc variable selection in financial distress studies results in the use of alternative variable sets containing heterogeneous variables unrelated to one another.
 
Keyword(s): ELECTRONIC FINANCIAL DISTRESS, FINANCIAL DISTRESS MODELS, CANONICAL CORRELATION ANALYSIS, REDUNDANCY COEFFICIENT
 
References: 
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