Prediction of Financial Distress by Multivariate Statistical Analysis: The Case of Firms Taken Into the Surveillance Market in the Istanbul Stock Exchange

Abstract

The purpose of this paper is to investigate whether or not firms that are taken into the surveillance market in Istanbul Stock Exchange are experiencing financial distress. The surveillance firms present irregular behaviors and have difficulty complying with current regulation. It can be expected that the basic reason behind these irregular behaviors is financial distress. Results of the study support this expectation and show that it is possible to predict financial distress one year in advance. Principal component analysis and discriminant analysis are combined in order to estimate an integrated early warning model for financial distress prediction.