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Using Financial Information to Differentiate Failed vs. Surviving Finance Companies in Thailand: An Implication for Emerging Economies

Multinational Finance Journal, 1999, vol. 3, no. 2, pp. 127-145

Abstract:
This article combines qualitative and quantitative information from financial statements and auditors' reports with logistic models to differentiate failed from surviving finance companies in Thailand. Failed companies are those that were forced to suspend their operations in mid-1997. The results indicate that auditors' reports from the 1996 financial statements did not differentiate failed from surviving finance companies. On the other hand, the logistic regression models indicate that failed finance companies had lower profitability, lower foreign borrowing possibly due to their poorer credit rating, lower management quality, and smaller size. These models have relatively high predictive ability for failed finance companies and low expected costs of misclassification

Keywords : CAMEL; emerging economies; financial failure; logistic model; Thailand
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