Prediction of financial distress for Indian companies

Abstract

Abstract With the growing incidence of corporate sickness in the global economy and its recent proliferation in the Indian sector reliable bankruptcy prediction models could provide very valuable information to a firm or an external agency in recognizing warning signals well in advance and thereby effectively assessing or managing performance . This study attempts to analyze and apply some well-known bankruptcy prediction models in the context of predicting financial distress for Indian companies. Various types of bankruptcy prediction models based on financial ratios, cash flows stock returns , and return standard deviations are applied to a wide range of financially distressed and non- distressed Indian companies . The predictive accuracy of each model is discussed in detail for up to five years prior to actual bankruptcy of the firm and the abilities of the various models under study are compared to identify the model yielding the highest a accuracy level for the selected sample set of Indian firms.