The survival potential of companies placed into administrative receivership
journal contributionposted on 05.04.2006, 17:40 by Robert Hamilton, Barry Howcroft, Zhonghua Liu, Keith PondKeith Pond
The paper focuses on a sample of companies, which have been placed into administrative receivership, and attempts to assess whether financial ratios used by lending banks can be identified and used to discriminate between companies which can be rescued and those which will fail. The distinctiveness of the paper lies in the fact that it applies conventional bank lending ratios, rather than prediction of failure ratios, to a sample of companies and is primarily concerned with the prediction of corporate survival rather than the prediction of corporate failure. The research compares two statistical classification techniques - Linear Discriminant Analysis and Logistic Regression - to ascertain which is the best at predicting eventual outcomes. A number of further issues, relating to which financial ratios are the most important in predicting future outcomes and the additional insight these financial ratios provide in helping to explain why companies move into crisis and why some companies are rescued and others fail, are also discussed in the paper.
- Business and Economics