Turnaround Prediction of Distressed Companies: Evidence from Malaysia

Journal of Financial Reporting and Accounting, Vol. 8, No. 2, 143-159

17 Pages Posted: 21 Apr 2010 Last revised: 30 Mar 2012

See all articles by syahida

syahida

affiliation not provided to SSRN

Rashid Ameer

IPU New Zealand Tertairy Institute

Date Written: April 21, 2010

Abstract

The purpose of this paper is to investigate the applicability of developed country turnaround predication models as well as an “in country” developed turnaround prediction model for a sample of financially distressed Malaysian companies over the period of 2000-2007.

Multiple Discriminant Analysis (MDA) technique was used to determine companies’ financial health. It was found that severity of financial distress, profitability, liquidity and size are significant predictor variables in determining turnaround potential of distressed companies in Malaysia. The findings show that developed country turnaround predication models have relatively better prediction accuracies compared to turnaround model based on Malaysian firm-level data. These models’ prediction accuracies were gauged by comparing their predicated successful/failed turnaround companies (Type I and II errors) with actual classification of successful/failed turnaround companies by the Bursa Malaysia, and it was found that developed country models were better than model developed using Malaysian data in identifying correctly some of the actual successful turnaround companies. The paper’s comparisons show that Bursa’s methodology is appropriate in classifying and monitoring the distressed companies. This is believed to be the first paper to examine turnaround of the companies in Malaysian context.

Keywords: financial distress, turnaround, financial ratios, Malaysia

JEL Classification: G00

Suggested Citation

Md Zeni, syahida and Ameer, Rashid, Turnaround Prediction of Distressed Companies: Evidence from Malaysia (April 21, 2010). Journal of Financial Reporting and Accounting, Vol. 8, No. 2, 143-159, Available at SSRN: https://ssrn.com/abstract=1593449

Syahida Md Zeni

affiliation not provided to SSRN ( email )

Rashid Ameer (Contact Author)

IPU New Zealand Tertairy Institute ( email )

57 Aokautere Drive
Fitzherbert
Palmerston north
New Zealand

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