Predicting Financial Distress in the Malaysian Market: Hazard Model Versus the Logit Model

Abstract

The increasing numbers of financially distressed firms in the Malaysian market demonstrate the importance of predicting financial distress among firms in Malaysia. Using firm financial ratios, this study focuses on predicting financial distress using the hazard model and logistic regression (logit model) based on the Malaysian market. This study used listed firms on the Malaysian stock market from 2000 to 2018 to create two sets of data comprising the main sample and holdout sample in order to compare the predictability between hazard and logit models. The results clearly show that the hazard model is better compared to the logit model in predicting financial distress for the Malaysian market since more variables were found to be significant in addition to the model being more consistent in terms of accuracy.

Financial Ratio, Distress, and Performance in Indonesian Transportation Companies

“…Thus, H1 can be accepted. These results are supported by Budiyasa andWidnyana (2022), Septyanto et al (2022), Pringgabayu et al (2022), Hanafi et al (2021), Ceylan (2021), Ogachi et al (2020), Nugrahanti et al (2020), andDiyanto (2020).CR is one of the liquidity ratios. Increasing the corporation's liquidity means it has many assets and can obtain large loans.…”

“…Thus CR influences financial distress (Wahyuni et al, 2020). Research by Ceylan (2021), Hanafi et al (2021), Budiyasa andWidnyana (2022), andSeptyanto et al (2022) obtained the results of a significant negative influence given by CR on financial distress, which also supported by the study of Nugrahanti et al (2020) found that companies with high liquidity can show that the assets owned are significant in number. The ability to obtain loans is also more significant, reducing the risk of financial difficulties.…”

“…This ratio allows companies to compare total equity and debt. Diyanto (2020), Wahyuni et al (2020), Isayas (2021), andHanafi et al (2021) revealed that DER positively affects financial distress because companies with high enough liabilities but low equity value may prevent the company from covering their obligations in time. If the debt is within the equity, the firm is not good at managing capital to generate profits, and vice versa.…”

Financial Distress and Bankruptcy Prediction Research in Indonesia: Last 20 Years

“…Second, the market-based approach. The market-based approach relies on the market valuation of the company by investors [29,30]. Valuations with a market-based approach include the hazard model [23,31].…”