Comparing the reliability of accounting-based and market-based prediction models

Recently developed financial distress prediction models adopt a market-based approach. It gained its popularity in the academic world due to its theoretical appeal. However, the comparison of market-based with traditional accountingratio- based models is limited in the literature. Therefore, this...

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Main Author:	Ahmad Monir Abdullah
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2016
Online Access:	http://journalarticle.ukm.my/10752/ http://journalarticle.ukm.my/10752/ http://journalarticle.ukm.my/10752/1/11809-43526-1-PB.pdf

id	ukm-10752
recordtype	eprints
spelling	ukm-107522017-10-09T09:25:16Z http://journalarticle.ukm.my/10752/ Comparing the reliability of accounting-based and market-based prediction models Ahmad Monir Abdullah, Recently developed financial distress prediction models adopt a market-based approach. It gained its popularity in the academic world due to its theoretical appeal. However, the comparison of market-based with traditional accountingratio- based models is limited in the literature. Therefore, this paper humbly attempts to add finding to the literature by comparing the accounting-based model with market-based model in order to present a comprehensive computational comparison of methodologies to fulfil the strategic information needs of investors and other stakeholders. Our accountingbased model employed multivariate discriminant analysis (MDA) and logistic regression analysis (LRA) and for marketbased model, we adopted Merton technique. Our sample consists of one hundred and fifty eight public listed companies in Malaysia. Sixteen financial ratios with five-feature groups including activity ratio, cash flow ratio, solvency ratio, liquidity ratio and profitability ratio are selected as variables for our accounting-based model. For the market-based model, we generate the logarithm by adopting the information from the market such as stock price and interest rate. The result of one year prior to financial distress classification indicates that LRA has the highest accuracy compared to other methodologies and both the accounting-based models (LRA and MDA) outperformed market-based (Merton) model. Penerbit Universiti Kebangsaan Malaysia 2016 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/10752/1/11809-43526-1-PB.pdf Ahmad Monir Abdullah, (2016) Comparing the reliability of accounting-based and market-based prediction models. Asian Journal of Accounting and Governance, 7 . pp. 41-55. ISSN 2180-3838 http://ejournal.ukm.my/ajac/issue/view/868/showToc
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	Recently developed financial distress prediction models adopt a market-based approach. It gained its popularity in the academic world due to its theoretical appeal. However, the comparison of market-based with traditional accountingratio- based models is limited in the literature. Therefore, this paper humbly attempts to add finding to the literature by comparing the accounting-based model with market-based model in order to present a comprehensive computational comparison of methodologies to fulfil the strategic information needs of investors and other stakeholders. Our accountingbased model employed multivariate discriminant analysis (MDA) and logistic regression analysis (LRA) and for marketbased model, we adopted Merton technique. Our sample consists of one hundred and fifty eight public listed companies in Malaysia. Sixteen financial ratios with five-feature groups including activity ratio, cash flow ratio, solvency ratio, liquidity ratio and profitability ratio are selected as variables for our accounting-based model. For the market-based model, we generate the logarithm by adopting the information from the market such as stock price and interest rate. The result of one year prior to financial distress classification indicates that LRA has the highest accuracy compared to other methodologies and both the accounting-based models (LRA and MDA) outperformed market-based (Merton) model.
format	Article
author	Ahmad Monir Abdullah,
spellingShingle	Ahmad Monir Abdullah, Comparing the reliability of accounting-based and market-based prediction models
author_facet	Ahmad Monir Abdullah,
author_sort	Ahmad Monir Abdullah,
title	Comparing the reliability of accounting-based and market-based prediction models
title_short	Comparing the reliability of accounting-based and market-based prediction models
title_full	Comparing the reliability of accounting-based and market-based prediction models
title_fullStr	Comparing the reliability of accounting-based and market-based prediction models
title_full_unstemmed	Comparing the reliability of accounting-based and market-based prediction models
title_sort	comparing the reliability of accounting-based and market-based prediction models
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2016
url	http://journalarticle.ukm.my/10752/ http://journalarticle.ukm.my/10752/ http://journalarticle.ukm.my/10752/1/11809-43526-1-PB.pdf
first_indexed	2023-09-18T19:58:21Z
last_indexed	2023-09-18T19:58:21Z
_version_	1777406681286705152

Comparing the reliability of accounting-based and market-based prediction models

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