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Corporate failure prediction: a study of public listed companies in Malaysia

Shuk-Wern Ong
Faculty of Business and Law, Multimedia University, Melaka, Malaysia

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Voon Choong Yap

Faculty of Management, Multimedia University, Cyberjaya, Malaysia, and

Roy W.L. Khong

Nottingham University Business School, Nottingham University (Malaysia Campus), Semenyih, Malaysia
Abstract
Purpose The objective of this paper is to develop a model that can predict nancial distress amongst public listed companies in Malaysia using the logistic regression analysis. Design/methodology/approach The logistic regression analysis used in this paper is geared towards developing a model that can predict nancial distress amongst public listed companies in Malaysia. Findings The results prove that ve nancial ratios have been found to be signicant and useful for corporate failure prediction in Malaysia. The overall predictive accuracy is 91.5 percent and this demonstrates that the logistic regression analysis used is a reliable technique for nancial distress prediction. In addition, the predictive accuracy of the model in this paper is higher than that of previous studies, which utilised discriminant analysis rather than the method adopted in this research. Originality/value The economic crisis mostly began to affect Malaysias economic standing in July 1997 causing many companies to fall into nancial distress, as they were unable to cope with the unexpected downturn. A nancial distress prediction model is therefore required to act as a predictor of Malaysian public listed companies well-being prior to a nancial crisis and to gauge the warning signals of the onset of a downturn in order to strategize their survival techniques during this phase. This study focuses on public listed companies in Malaysia, thus the model adopted is tailored to suit the given context. Keywords Economic forecasting, Financial modelling, Business failures, Malaysia Paper type Research paper

1. Introduction The economic crisis that occurred in 1997 had a major impact on Asian corporations. In Malaysia, the effects of the economic crisis became visible in July 1997 and caused many nancially sound companies to face bankruptcy. Ferri et al. (1998) convey that the problems of corporate nancial structures in East Asian corporations, which included Malaysian corporations, highly contributed to the East Asian nancial crisis, and resulted in many bankrupt corporations. Shae et al. (1999) state that the impact of the crisis on corporate failure in Malaysia was seen through indicators such as company liquidation, default in debt repayments, and non-compliance with reporting as well as rating action. The nancial ratio analysis plays an important role in supporting the operations of nancial institutions. Altman (1983) found that at least 24 commercial banks depend

Managerial Finance Vol. 37 No. 6, 2011 pp. 553-564 q Emerald Group Publishing Limited 0307-4358 DOI 10.1108/03074351111134745

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on failure classication models in their lending decisions, security and portfolio analyses. Similarly, Fauzias and Chin (2002) stress on the importance of nancial distress prediction models for credit analysis in nancial institutions. Financial institutions utilise the model to evaluate the creditworthiness of customers when processing loans. If these organisations identify companies that have the potential of falling into nancial distress, then relevant preventive or corrective action may be taken. For instance, they can reject loan applications or assist borrowing companies to identify organisational weaknesses and take essential steps to rectify them in order to avoid loan defaults. They can also recommend capital injection into the corporation through issuing of new shares. In other corporate failure studies undertaken in the UK, Argenti (1976) applies Altmans (1968) model, translating American accounting terms to nearest the UK equivalent. He discovers that the results are not necessarily relevant and therefore concludes that corporate failure models derived in one country are not necessarily applicable to another. According to Her and Choe (1999), the research ndings from developed economies cannot be applied to Malaysian rms due to the differences in market structures, socio-economic factors, provision and implementation of law, political environment, and accounting standards. Besides that, Brigham and Gapenski (1994) mention that a more accurate nancial distress prediction model can be developed by relying on specic industry data. Grice and Dugan (2001) who conducted a study to evaluate the Zmijewski (1984) and Ohlson (1980) models found that both were sensitive to time periods; whereby, accuracy of the models decreased when applied to different periods of the original models. Models are therefore time sensitive. Besides nancial institutions and related organisations, individuals such as investors, auditors and regulators will benet from such a study, thus, emphasising the need for this paper to focus on the Malaysian context. This would ensure the development of a unique set of nancial ratios that will set the standard for effectiveness and accuracy in nancial distress prediction in Malaysia. Altman (1968) extended the study of corporate failure prediction models by applying the discriminant analysis (MDA) technique to the failure classication model. The MDA was widely used for corporate failure studies in the 1970s and 1980s (Altman, 1968; Altman and Lavallee, 1981; Ko, 1982; Izan, 1984). However, MDA is not free from defects because it largely depends on some restrictive assumptions such as linearity, normality, independence amongst input variables and a pre-existing functional form relating to the dependent variables and independent variables (Eisenbeis, 1977; Nam and Jinn, 2000; Fathi and Jean, 2001; Ugurlu and Aksoy, 2006; Wang and Deng, 2006). In addition, the MDA assumptions, especially on the multivariate normality of data were not examined by most of the researchers. According to Karels and Prakash (1987), the MDA will only be optimal if the normality conditions are met. One of the main assumptions of the MDA is the normality of its input data. If this normality assumption does not hold strong, the result of the model is deemed invalid. In order to overcome some of the limitations and weaknesses of the MDA and to provide higher prediction accuracy, some studies adopted logistic regression or LOGIT analysis to construct predictive models (Ohlson, 1980; Zmijewski, 1984; Nam and Jinn, 2000; Fathi and Jean, 2001; Ugurlu and Aksoy, 2006; Wang and Deng, 2006). Furthermore, the logistic regression analysis was also used in recent nancial distress prediction studies (Barniv et al., 2002; Charitou et al., 2004; Mohamad et al., 2005; Chen, 2008). According to Chi and Tang (2006), their bankruptcy prediction model demonstrated decent classication accuracy and robustness by using LOGIT analysis.

Laitinen and Laitinen (2000) also adopted the logistic regression in their bankruptcy prediction model to avoid the problems associated with the normality of variables. Therefore, the objective of this paper is to develop a model that can predict nancial distress amongst listed companies in Malaysia by using the logistic regression analysis. This paper has ve sections. The following section provides a denition of nancial distress in Malaysia, followed by data and methodology. Section 4 discusses the empirical results and the last section concludes the study. 2. Denition of nancial distress in Malaysia In Malaysia, there are ve options in dealing with nancial distress in the corporate sector, ranging from outright liquidation, to debt restructuring and reorganisation of the company (Thillainathan, 2000). The ve options are: (1) winding up under Companies Act 1965 (CA); (2) committing to a Scheme of Arrangement and Reconstruction under the CA; (3) debt restructuring under Corporate Debt Restructuring Committee (CDRC); (4) selling of the rms loans by nancial institutions to Pengurusan Danaharta Nasional Berhad (Danaharta); and (5) restructuring of small borrowers by individual debt workout. In January 2001, Bursa Malaysia, the national bourse, introduced new guidelines pertaining to listing requirements (LR) to promote efciency and credibility of the market to the advantage of listed companies, directors, intermediaries and shareholders. In conjunction with the new LR, Bursa Malaysia also issued 12 practice notes (PN) to provide for the interpretation of several provisions, to specify administrative procedures as well as to facilitate greater compliance with LR. There were three provisions introduced to improve the quality of companies listed on Bursa Malaysia, namely: (1) PN 1/2001. (2) PN 4/2001. (3) PN 10/2001. According to a Bursa Malaysia Media Release dated 30 November 2004, Bursa Malaysia (2001) reviewed the PN 4/2001 and PN 10/2001 frameworks to enhance the quality of companies listed on Bursa Malaysia. One of the amendments, according to paragraphs 8.14 and 8.16 of the LR was that PN 4/2001 and PN 10/2001 were to be repealed. Two new paragraphs 8.14C and PN 17/2005 replaced the former to provide for the obligation of listed companies with unsatisfactory nancial conditions and level of operations (excluding cash companies) (Bursa Malaysia, 2005). In addition, the new paragraphs 8.14B and PN 16/2005 were issued to provide for the obligation of cash companies. The new framework applies to listed companies that fall into the nancial distress category after the effective date. The existing PN 4/2001 and PN 10/2001 companies continue to comply with their obligations under paragraph 8.14 of the LR and PN 4/2001 or paragraph 8.16 and PN 10/2001, respectively. Furthermore, a Bursa Malaysia Media Release dated 5 May 2006 communicated a further amendment to the LR in relation to the nancial conditions and the level of operations of listed issuers, and to enhance the same; to strengthened investor protection;

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and to promote investor condence. The key changes were made to paragraphs 8.14B and 8.14C of the LR and PN No. 16/2005 (amended PN16) and No. 17/2005 (amended PN17), respectively. Firms under nancial distress, as relayed in this paper, are dened by the following ve criteria. They are: (1) rms that seek protection and are restructured under the Scheme of Arrangement and Reconstruction pursuant to Section 176 of the CA 1965; (2) rms that restructure under the CDRC; (3) rms whose loans are sold by nancial institutions to Pengurusan Danaharta Nasional Berhad (Danaharta); (4) rms that have worked on debt restructuring individually with their creditors; and (5) rms classied by Bursa Malaysia under PN No. 4 (PN4), No. 17 (PN17), and No. 17 (amended PN17). 3. Data and methodology 3.1 Data The sample adopted in this study was selected from companies listed on Bursa Malaysia and classied as nancial distressed from 2001 to 2007 in accordance to the provided denition in this research. The sample comprises of 105 companies from seven different sectors. The breakdown by industry is as follows: (1) industrial products (40 companies); (2) trading and services (21 companies); (3) properties (ten companies); (4) consumer products (14 companies); (5) construction (12 companies); (6) plantation (six companies); and (7) nance (two companies). Owing to the limited sample size, the 105 companies were used to develop the logistic regression in forecasting nancially distressed listed companies in Malaysia. The sample is further divided into two sub-samples: (1) the analysis sample (100 companies): which is used as an estimation of logistic regression; and (2) the holdout sample (ve companies): used for validation purposes. The analysis sample comprises of the companies listed as nancial distressed between 2001 and 2006; while the holdout sample comprises of the companies listed as nancial distressed in 2007. A paired sample design technique was employed in this study. Each nancially distressed public listed company in both sub-samples was matched with a non-nancially distressed listed company, listed during the same period. The matching criteria include same industry, closest asset size and failure year to minimise bias in selecting the control

group or holdout sample for the development of nancial prediction models (Beaver, 1966; Altman, 1968; Blum, 1974; Zmijewski, 1984; Platt and Platt, 1990). 3.2 Independent and dependent variables There is no theoretical approach in selecting variables for nancial distress prediction models. According to Laitinen and Laitinen (2000), the choice of nancial ratios as variables in nancial distress prediction models is constructed from a series of trial and error processes as practiced by most of the researchers in previous studies. Thus, in this study, the independent variables were selected based on the signicance and recognition of nancial ratios in earlier studies. The independent variables in this study are the 11 selected nancial ratios as seen in Table I. They were found useful in previous nancial distress prediction studies (Merwin, 1942; Beaver, 1966; Altman, 1968; Deakin, 1972; Edmister, 1972; Blum, 1974; Altman et al., 1977; El Hennawy and Morris, 1983; Laitinen and Laitinen, 2000; Barniv et al., 2002; Charitou et al., 2004; Wang and Deng, 2006). The dependent variables are dichotomous variables, which are nancial and non-nancial distress listed companies in Malaysia. 3.3 Methodology Logistic regression is the appropriate statistical technique when the dependent variable is a categorical nominal or non-metric) variable and the independent variables are metric variables (Hair et al., 2006). Besides that, logistic regression is also a specialised form of regression that is formulated to predict and explain a binary (two-group) categorical variable rather than a metric-dependent measurement. Logistic regression models, often referred to as LOGIT analysis, are a combination of multiple regression and discriminant analysis: Logit i b0 b1 X 1 bn X n Logistic regression models are distinguished from MDA primarily in that they accommodate all types of independent variables (metric and non-metric) and do not
Activity ratio Quick asset turnover Current asset turnover Asset turnover Days sales in receivable Sales to xed assets Cash ow ratio Cash ow to assets Cash ow to total debt Solvency ratio Total liabilities to total assets Debt to equity Liquidity ratio Current ratio Protability ratio Return on equity

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Sales/(cash receivables) Sales/current assets Sales/total assets Receivables/(sales/365) Sales/xed assets Earnings before interest, taxes, depreciation and amortization (EBITDA)/total assets EBITDA/total liabilities Total liabilities/total assets Total liabilities/(total assets 2 total liabilities) Current assets/current liabilities Net income/(total assets 2 total liabilities) Table I. List of nancial ratios

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require the assumption of multivariate normality. Furthermore, logistic regression has the advantage of being less affected and more robust than MDA when the assumption of multivariate normality is not met (Hair et al., 2006). The dependent variable in this study is a two-group categorical variable: distressed group and non-distressed group. Therefore, in this study, logistic regression is used to predict nancial distress amongst listed companies in Malaysia. 4. Empirical results 4.1 Descriptive statistics of independent variables Table II presents descriptive statistics of the independent variables used to estimate the logistic regression model in this paper. As anticipated, the mean of quick asset turnover for non-distressed companies (3.45 times) is higher than the mean for distressed companies (3.27 times). Financially healthy companies have higher asset turnover ratio of 0.65 times as compared to distressed companies (0.51 times). The days sales in receivables for distressed companies is 4,932 days, a paramount difference when compared to nancially healthy companies, which recorded a days sales in receivables at 152 days. This shows that distressed companies take a longer period to collect money from their debtors and this affects the cash ows of the companies. The mean of sales to xed assets for non-distressed companies (1.91 times) is higher than the mean for distressed companies (1.42 times). In addition, the cash ow to assets for nancially healthy companies and distressed companies are 0.08 and 2 0.22, respectively. Apart from that, the cash ow to total debt for non-distress companies is 0.50, while the ratio is 2 0.14 for distressed companies. The negative sign for both cash ow ratios shows that the distressed companies are incurring a loss. Distressed companies are high in debt, with a liability to asset percentage of 139.54 percent. The same percentage for nancially healthy companies is recorded at 36 percent.

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Non-distress companies Mean SD Activity ratio Quick asset turnover Current asset turnover Asset turnover Days sales in receivable Sales to xed assets Cash ow ratio Cash ow to assets Cash ow to total debt Solvency ratio Total liabilities to total assets Debt to equity Liquidity ratio Current ratio Protability ratio Return on equity 3.4512 1.3082 0.6513 151.5200 1.9053 0.0829 0.4997 0.3619 0.6220 5.5881 0.0401 3.26614 0.84683 0.37211 134.98855 1.96303 0.07220 0.83309 0.23433 2.50412 9.57029 0.13791

Distress companies Mean SD 3.2665 1.6577 0.5124 4,932.0800 1.4157 20.2167 20.1400 1.3954 21.5157 1.2074 0.4948 3.28254 1.62274 0.44518 41,295.12510 3.12370 0.54666 0.38987 1.15778 10.97577 5.98238 1.84218

Table II. Descriptive statistics of independent variables

Besides that, the current ratio for distressed companies is 1.21; the ratio for non-distressed companies is 5.59. This means that for every RM1.00 of current liabilities of healthy companies, there is support of RM5.59 from the current assets. The amount decreases to RM1.21 for distressed companies; this is a signal that these companies would probably have difculties to meet their short-term credit obligations. 4.2 Estimation results of logistic regression analysis There are ve nancial ratios, namely: (1) current asset turnover; (2) asset turnover; (3) days sales in receivables; (4) cash ow to total debt from cash ow ratio group; and (5) total liabilities to total assets from debt ratio group, found to be signicant in predicting nancial distress amongst listed companies in Malaysia. The asset turnover ratio measures the rms efciency at using its assets to generate sales or revenue and it has a negative correlation with the dependent variable in this study. This means that the higher the asset turnover ratio, the lower the probability of a rm going into nancial distress. This is because when a company is productive in generating sales or revenue; there will be a higher level of cash inows into the particular company, reducing the risk of falling into nancial distress. The asset turnover variable is found to be a signicant ratio in Altman and Lavallees (1981) study. Days sales in receivables is another signicant variable, as it is reected through the average number of days that a rm takes to collect revenue after a sale has been made. The faster revenue is collected, the faster it can be used to settle debts. As such, liquidity of the rm is higher lowering the probability of a rm to fall into nancial distress. This demonstrates a positive relationship with the dependent variable; the lower the days sales in receivables ratio, the lower the chances of corporate failure. Cash ow to total debt ratio is negatively correlated to the probability of a rm going into nancial distress. Cash ow to total debt ratio is found to be signicant in Westgaard and van der Wijst (2001). This means that the higher the ratio, the lower the probability of a rm to fall into nancial distress. If a rm has more earnings than its liabilities, it will be less likely to face bankruptcy. Total liabilities to total assets ratio is another signicant nancial ratio and it has a positive relationship with the probability of a rm going nancially distress. The higher the ratio, the higher the probability of a rm falling into nancial distress; as a company with more debt than assets is more likely to fail. This is consistent with the results reported by Mohamed et al. (2001) and Nur Adiana et al. (2008). Nagelkerke R 2 (also known as coefcient of determination) of this model is 0.814. This means that 81.4 percent of the variance in the dependent variable; distressed and non-distressed groups can be explained by the nancial ratios in this analysis (Table III). 4.3 Classication results of logistic regression analysis Table IV shows the breakdown of companies and their percentages, which are correctly classied as 0 (healthy companies) and 1 (distressed companies) for the logistic

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Variables Activity ratio Quick asset turnover Current asset turnover Asset turnover Days sales in receivable Sales to xed assets Cash ow ratio Cash ow to assets Cash ow to total debt Solvency ratio Total liabilities to total assets Debt to equity Liquidity ratio Current ratio Protability ratio Return on equity Constant

Coefcients 20.160 2.070 23.699 0.004 0.195 3.836 25.755 5.807 0.035 20.129 0.202 24.883

Logistic regression analysis SE 0.153 0.622 1.639 0.002 0.239 5.311 2.516 1.228 0.040 0.144 0.349 1.316

Wald test 1.087 9.768 * * * 5.094 * * 6.004 * * 0.664 0.522 5.232 * * 22.364 * * * 0.758 0.802 0.337 13.755 * * *

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Table III. Estimation results of logistic regression analysis

Notes: Signicance at: *10, * *5 and * * *1 percent level

Predicted Observed Table IV. Classication results of logistic regression analysis Company Overall percentage 0 1 0 93 10 Company 1 7 90 Percentage correct 93.0 90.0 91.5

regression analysis. Out of 100 nancially healthy companies, 93 (93.0 percent) are correctly classied as healthy companies and 90 out of 100 distressed companies (90.0 percent) are correctly classied as distressed companies. The overall percentage, which is correctly classied, is 91.5 percent for this analysis. The overall predictive accuracy in this study is higher than of previous studies conducted within the Malaysian context, which utilised discriminant analysis (Nur Adiana et al., 2008) and the logistic regression analysis (Mohamed et al., 2001; Nur Adiana et al., 2008). This may be due to discrepancies within the sample and variables adopted. However, this shows that the logistic regression model in this study has a higher predictive capability than methodologies adopted in previous studies in Malaysia. The logistic regression is therefore a better technique in predicting nancially distressed listed companies in Malaysia, by using all the in-sample companies from all of the seven sectors. 4.4 Validation results of logistic regression analysis The validation method for the logistic regression analysis was executed by dividing the sample into two sub-samples:

(1) the analysis sample that is used for estimation of logistic regression; and (2) the holdout sample that is used for validation purposes. The hit ratio or the percentage correctly classied for the groups was examined. The standard of comparison for the hit ratio for equal group size is one divided by the number of groups. In this study, the standard of comparison for the hit ratio was (1/2 0.50 or 50 percent). So far, no denite guidelines have been established in determining the relative size of the analysed sample as well as holdout sample. Validity is established if the logistic function performs at an acceptable level in classifying observations that were not used in the logistic analysis (Hair et al., 2006). According to Hair et al. (2006), the classication accuracy should be at least one-fourth (25 percent) greater that the hit ratio, calculated at 50 percent. In other words, the validation of the holdout sample should be at least 62.5 percent [50 percent (0.25*50 percent)]. In this paper, the validation of the holdout sample is 90 percent (nine out of ten companies in the holdout sample) correctly classied as shown in Table V. It shows that the validation percentage of 90 percent is more than the classication accuracy as calculated earlier. Therefore, this study has achieved validity as it has reached the acceptable level of classifying observations in the holdout sample. Some suggestions for future research would be developing nancial distress prediction models using other methods such as neural networks and other advanced decision-making techniques to enhance the accuracy of corporate failure prediction models in Malaysia. 5. Conclusion Previous studies on corporate failure prediction adopted discriminant analysis as the technique for their modelling. However, most researchers have overlooked the MDA assumptions such as multivariate normality of data and this causes invalidity of results for the nancial distress prediction model. Therefore, studies that are more recently employed the logistic regression to overcome the problems of MDA as logistic regression is known for more efcient classication accuracy and robustness.

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Company 1 1 1 1 1 0 0 0 0 0

Logit 0.9787 13.4774 8.7826 49.0395 4.7872 2.4208 26.4837 20.2342 24.9313 210.8895

Odd 2.6610 713,116.4428 6,519.8067 1,984,194,517,447,440,000,000.0000 119.9650 11.2549 0.0015 0.7912 0.0072 0.0000

Probability 1 1 1 1 1 1 0 0 0 0

Notes: Logit 2:070 current asset turnover 2 3.699 asset turnover 0.004 days sales in receivables 2 5:755 cash ow to total debt 5.807 total liabilities to total asset 2 4.883; Odds e^ Logit (e to the power of Logit); Probability Odds/(1 Odds)

Table V. Validation results of logistic regression analysis

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In this paper, the sample comprised of 105 nancially distressed companies that were matched with a sample of 105 non-nancially distressed companies listed in Bursa Malaysia. They were further divided into an analysis sample and a holdout sample. This study was competent in proving that logistic regression is a better technique in predicting nancial distress amongst listed companies in Malaysia through the following. The classication results of 91.5 percent prove that logistic regression analysis is a more reliable technique for nancial distress prediction, as the predictive accuracy is higher than previous studies that employed discriminant analysis. Furthermore, this study also reported that logistic regression accurately predicts 90 percent of the holdout sample. The results reected that the ve nancial ratios, namely: (1) current asset turnover; (2) asset turnover; (3) days sales in receivables; (4) cash ow to total debt; and (5) total liabilities to total assets were found to be signicant for corporate failure prediction in Malaysia. The results fell in accordance to previous studies conducted by other researchers from other countries. This nancial distress prediction model may be of interest to regulating agencies such as the Securities Commission, Bursa Malaysia and Bank Negara Malaysia as the model may act as an authority to assess the on-going concern and solvency of institutions under their supervision. This may help prevent any nancial failures using public funds. Investors may also utilise this particular model to assess the nancial health of companies, prior or after an investment, so on-going sound decisions may be made to protect their interest.
References Altman, E.I. (1968), Financial ratios, discriminant analysis and the prediction of corporate failure, Journal of Finance, Vol. 23 No. 4, pp. 589-609. Altman, E.I. (1983), Corporate Financial Distress: A Complete Guide to Predicting, Avoiding and Dealing with Bankruptcy, 2nd ed., Wiley, New York, NY. Altman, E.I. and Lavallee, M. (1981), Business failure classication in Canada, Journal of Business Administration, Vol. 12 No. 1, pp. 147-64. Altman, E.I., Haldeman, R.G. and Narayanan, P. (1977), A new model to identify bankruptcy risk of corporations, Journal of Banking & Finance, Vol. 1 No. 1, pp. 29-54. Argenti, J. (1976), Corporate Collapsed: The Causes and Symptoms, McGraw-Hill, Macquarie Park. Barniv, R., Agarwal, A. and Leach, R. (2002), Predicting bankruptcy resolution, Journal of Business Finance & Accounting, Vol. 29 Nos 3/4, pp. 497-520. Beaver, W.H. (1966), Financial ratios as predictors of failure, Journal of Accounting Research, Vol. 4 No. 3, pp. 71-111. Blum, M. (1974), Failing company discriminant analysis, Journal of Accounting Research, Vol. 12 No. 1, pp. 1-25.

Brigham, E.F. and Gapenski, L.C. (1994), Financial Management: Theory and Practice, 7th ed., Dryden, Orlando, FL. Bursa Malaysia (2001), Listing Requirements: Practice Notes No. 4, Bursa Malaysia, Kuala Lumpur. Bursa Malaysia (2005), Listing Requirements: Practice Notes No. 17, Bursa Malaysia, Kuala Lumpur. Charitou, A., Neophytou, E. and Charalanbous, C. (2004), Predicting corporate failure: empirical evidence for the UK, European Accounting Review, Vol. 13 No. 3, pp. 465-97. Chen, H.H. (2008), The timescale effects of corporate governance measure on predicting nancial distress, Review of Pacic Basin Financial Markets & Policies, Vol. 11 No. 1, pp. 35-46. Chi, L.C. and Tang, T.C. (2006), Bankruptcy prediction: application of LOGIT analysis in export credit risks, Australian Journal of Management, Vol. 31 No. 1, pp. 17-27. Deakin, E.B. (1972), A discriminant analysis of predictors of business failure, Journal of Accounting Research, Vol. 10 No. 1, pp. 167-79. Edmister, R.O. (1972), An empirical test of nancial ratio analysis for small business failure prediction, Journal of Financial and Quantitative Analysis, Vol. 7 No. 2, pp. 1477-93. Eisenbeis, R.A. (1977), Pitfalls in the application of discriminant analysis in business and economics, Journal of Finance, Vol. 32 No. 3, pp. 875-900. El Hennawy, R.H.A. and Morris, R.C. (1983), The signicance of base year in developing failure prediction models, Journal of Business Finance & Accounting, Vol. 10 No. 2, pp. 209-23. Fathi, E. and Jean, P.G. (2001), Financial distress and corporate governance: an empirical analysis, Corporate Governance: The International Journal of Effective Board Performance, Vol. 1 No. 1, pp. 15-23. Fauzias, M.N. and Chin, Y.F. (2002), Z-score revisited: its applicability in predicting bankruptcy in the Malaysian environment, Bankers Journal, No. 120, pp. 20-32. Ferri, G., Hahm, H. and Bongini, P. (1998), Corporate Bankruptcy in Korea: Only the Strong Survive, The World Bank, Washington, DC. Grice, J.S. and Dugan, M.T. (2001), The limitations of bankruptcy prediction models: some cautions for the researcher, Review of Quantitative Finance and Accounting, Vol. 17 No. 2, pp. 151-66. Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E. and Tatham, R.L. (2006), Multivariate Data Analysis, 6th ed., Prentice-Hall, Upper Saddle River, NJ. Her, Y.W. and Choe, C. (1999), A Comparative Study of Australian and Korean Accounting Data in Business Failure Prediction Models, La Trobe University, Melbourne. Izan, H.Y. (1984), Corporate distress in Australia, Journal of Banking & Finance, Vol. 8 No. 2, pp. 303-20. Karels, G.V. and Prakash, A.J. (1987), Multivariate normality and forecasting of business bankruptcy, Journal of Business Finance & Accounting, Vol. 14 No. 4, pp. 573-93. Ko, C.J. (1982), A delineation of corporate appraisal models and classication of bankruptcy rms in Japan, thesis, New York University, New York, NY. Laitinen, E.K. and Laitinen, T. (2000), Bankruptcy prediction: application of the Taylors expansion in logistic regression, International Review of Financial Analysis, Vol. 9 No. 4, pp. 327-49. Merwin, C.L. (1942), Financial Small Corporations: In Five Manufacturing Industries 1926-36, National Bureau of Economic Research, New York, NY.

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Mohamad, I.H., Annuar, M.N., Shamsher, M. and Tauq, H. (2005), Prediction of corporate nancial distress of PN4 companies in Malaysia: a logistic model approach, Journal of Restructuring Finance, Vol. 2 No. 2, pp. 143-55. Mohamed, S., Li, A.J. and Sanda, A.U. (2001), Predicting corporate failure in Malaysia: an application of the logit model to nancial ratio analysis, Asian Academy of Management Journal, Vol. 6 No. 1, pp. 99-118. Nam, J.H. and Jinn, T.H. (2000), Bankruptcy prediction: evidence from Korean listed companies during the IMF crisis, Journal of International Financial Management & Accounting, Vol. 11 No. 3, pp. 178-97. Nur Adiana, H.A., Halim, Abd., Hamilton, A. and Rohani, M.R. (2008), Predicting corporate failure of Malaysias listed companies: comparing multiple discriminant analysis, logistic regression and the hazard model, International Research Journal of Finance and Economics, Vol. 7 No. 15, pp. 201-17. Ohlson, J.A. (1980), Financial ratios and the probabilistic prediction of bankruptcy, Journal of Accounting Research, Vol. 18 No. 1, pp. 109-31. Platt, H.D. and Platt, M.B. (1990), Development of class of stable predictive variables: the case of bankruptcy prediction, Journal of Business Finance & Accounting, Vol. 17 No. 1, pp. 31-51. Shae, A.G., Ang, J. and Ahmadu, J.S. (1999), The effects of economic downturn on the Bursa Malaysia listed companies, Malaysian Management Review, Vol. 34 No. 2, pp. 23-45. Thillainathan, R. (2000), Malaysian nancial and corporate sector under distress: a mid-term assessment of the restructuring efforts, Bankers Journal, No. 114, pp. 19-26. Ugurlu, M. and Aksoy, H. (2006), Prediction of corporate nancial distress in an emerging market: the case of Turkey, Cross Cultural Management, Vol. 13 No. 4, pp. 277-95. Wang, Z.J. and Deng, X.L. (2006), Corporate governance and nancial distress, Chinese Economy, Vol. 39 No. 5, pp. 5-27. Westgaard, S. and van der Wijst, N. (2001), Default probabilities in a corporate bank portfolio: a logistic model approach, European Journal of Operational Research, Vol. 135 No. 2, pp. 338-49. Zmijewski, M.E. (1984), Methodological issues related to the estimation of nancial distress prediction models, Journal of Accounting Research, Vol. 22, pp. 59-82 (supplement). Further reading Altman, E.I. and Narayanan, P. (1997), An international survey of business failure classication models, Financial Markets, Institutions & Instruments, Vol. 6 No. 2, pp. 1-57. Corresponding author Shuk-Wern Ong can be contacted at: lyn_wern@yahoo.com

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