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Comparing the Reliability of Accounting-based and Market-based Prediction Models

Asian Journal of Accounting and Governance

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Title Comparing the Reliability of Accounting-based and Market-based Prediction Models
 
Creator Abdullah, Ahmad Monir; Universiti Kuala Lumpur
 
Subject Financial distress prediction; Logistic regression analysis; Merton model; Multivariate discriminant analysis; Receiver operating characteristics curve
 
Description Recently developed financial distress prediction models adopt a market-based approach. It gained its popularity in the academic world due to its theoretical appeal. However, the comparison of market-based with traditional accounting- ratio-based models is limited in the literature. Therefore, this paper humbly attempts to add finding to the literature by comparing the accounting-based model with market-based model in order to present a comprehensive computational comparison of methodologies to fulfil the strategic information needs of investors and other stakeholders. Our accounting- based model employed multivariate discriminant analysis ( MDA ) and logistic regression analysis ( LRA ) and for market- based model, we adopted Merton technique. Our sample consists of one hundred and fifty eight public listed companies in Malaysia. Sixteen financial ratios with five-feature groups including activity ratio, cash flow ratio, solvency ratio, liquidity ratio and profitability ratio are selected as variables for our accounting-based model. For the market-based model, we generate the logarithm by adopting the information from the market such as stock price and interest rate. The result of one year prior to financial distress classification indicates that LRA has the highest accuracy compared to other methodologies and both the accounting-based models ( LRA and MDA ) outperformed market-based (Merton) model.
 
Publisher Penerbit UKM
 
Contributor —
 
Date 2016-11-03
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://ejournal.ukm.my/ajac/article/view/11809
10.17576/AJAG-2016-07-04
 
Source Asian Journal of Accounting and Governance; Vol 7 (2016); 41-55
2180-3838
 
Language eng
 
Relation http://ejournal.ukm.my/ajac/article/view/11809/4864
 
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