Title

Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach

Document Type

Journal Article

Publication Title

Journal of Asian Economics

Volume

74

Publisher

Elsevier

School

School of Business and Law

RAS ID

32968

Comments

Dinh, D. V., Powell, R. J., & Vo, D. H. (2021). Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach. Journal of Asian Economics, 74, article 101293. https://doi.org/10.1016/j.asieco.2021.101293

Abstract

This study is conducted to investigate the prediction of corporate financial distress based on the Merton (1974) market-based Distance to Default (DD) model over the period from 1997 to 2016 which covers a range of economic financial circumstances, including the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC). The study focusses on the six largest countries in the ASEAN Economic Community (AEC), comprising of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unlike previous studies which focus mainly on bankruptcy, this paper focusses on early warning distress indicators that signal distress well before bankruptcy. This is when firms experience difficulty in servicing debt as measured by interest coverage ratio (ICR) at a firm level and non-performing loans (NPLs) at a country level. Key empirical findings from this paper indicate that the market-based distance-to-default (DD) model is generally a good early warning indicator of financial distress in the following year, particularly for ICR, but that prediction accuracy varies between individual countries in the Southeast Asian region.

DOI

10.1016/j.asieco.2021.101293

Access Rights

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Research Themes

Society and Culture

Priority Areas

Individual, economic, organisational, political and social transformation

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