Title: An empirical evaluation of four financial distress prediction models for Greek firms: is there a 'most appropriate' model?

Authors: Dimitrios P. Charalambidis, Dimitrios L. Papadopoulos

Addresses: Department of Accounting and Finance, University of Macedonia, 32 D. Tseliou Street, Thessaloniki, PC 54454, Greece. ' Department of Accounting and Finance, University of Macedonia, 156 Egnatias Street, Thessaloniki, PC 54006, Greece

Abstract: In this paper, four financial distress prediction models for Greek firms are tested. Relevant analysis is based on a sample of 37 financially distressed (18 listed and 19 non-listed) and 226 non-distressed (48 listed and 178 non-listed) firms. The superiority of a particular model relates to its predictive accuracy and expected loss of misclassification errors in a range of likely values for the prior probability of financial distress and the cost ratio of Types 1 and 2 errors. We find that: a) rates of correct predictions are unstable when models are used to predict financial distress in periods following the one that was considered to estimate them; b) if a model is found to be the most superior, it does so for almost all likely values of cost and prior probabilities ratios; c) no single model can be considered absolutely appropriate to predict the financial distress of Greek firms as superiority of models differs between non-listed and listed firms.

Keywords: financial distress prediction; predictive ability; misclassification cost ratio; expected loss; Greek firms; empirical evaluation; Greece.

DOI: 10.1504/IJMFA.2010.032491

International Journal of Managerial and Financial Accounting, 2010 Vol.2 No.1, pp.95 - 112

Published online: 03 Apr 2010 *

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