Predicting corporate financial distress in UK

The motivation for empirical research in corporate financial distress prediction is clear: the early detection of financial distress and the use of corrective measures are preferable to protection under insolvency law. Many different models have been used to predict corporate financial distress, and choosing between them for empirical application is not straightforward. One objective of this research is providing a comprehensive review, clarifying the problem of model choice in empirical prediction of corporate financial distress. To that end, we conduct a meta-analysis of the literature reviewed in this thesis. This analysis supports the use of Multiple Discriminant Analysis on rather objective grounds. This study adopts a novel approach by using a large panel of UK-quoted firms (3135) from 1990 to 2004 and develops a multiple discriminant distress prediction model, using 58 firm-specific financial ratios. The results are also compared with cross-sectional data sets and using GDP growth rate as a control variable. [Continues.]