IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v7y2015i2p1186-1200d45039.html
   My bibliography  Save this article

Predicting Financial Distress in the Hong Kong Growth Enterprises Market from the Perspective of Financial Sustainability

Author

Listed:
  • Hui Hu

    (Economics and Management School, Wuhan University, Wuhan 430072, China)

  • Milind Sathye

    (Faculty of Business, Government and Law, University of Canberra, Bruce ACT 2601, Australia)

Abstract

The present study, according to our knowledge, is the first attempt to establish a financial distress prediction model for a unique set of enterprises, which are the enterprises listed on the specialized Hong Kong Growth Enterprise Market. It also makes an analysis of corporate financial sustainability and its relationship to financial distress prediction. The logistic regression and jackknife method are used to test the predictability of various models with data drawn from the Growth Enterprise Market for the years 2000–2010. The study finds that a model that includes firm-specific financial variables, firm-specific non-financial variables and a macro-economic variable is a better predictor of financial distress than is a model that includes only the first set of variables or a model that includes the latter two sets of variables. It also finds that a model that includes the latter two sets of variables is a better predictor of financial distress than is a model that includes only the first set of variables. These findings are vital for financial sustainability, as investors, policymakers, auditors and stakeholders of this market would find the conclusions emanating from the study extremely useful.

Suggested Citation

  • Hui Hu & Milind Sathye, 2015. "Predicting Financial Distress in the Hong Kong Growth Enterprises Market from the Perspective of Financial Sustainability," Sustainability, MDPI, vol. 7(2), pages 1-15, January.
    • Handle: RePEc:gam:jsusta:v:7:y:2015:i:2:p:1186-1200:d:45039
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/7/2/1186/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/7/2/1186/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. R. G. Walker & Stewart Jones, 2006. "An Alternative Approach To Identifying Councils ‘At Risk’," Economic Papers, The Economic Society of Australia, vol. 25(4), pages 347-357, December.
    2. Hsin-Hung Chen, 2008. "The Timescale Effects of Corporate Governance Measure on Predicting Financial Distress," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 35-46.
    3. Georges Dionne & Sadok Laajimi & Sofiane Mejri & Madalina Petrescu, 2006. "Estimation of the Default Risk of Publicly Traded Canadian Companies," Staff Working Papers 06-28, Bank of Canada.
    4. Balcaen, Sofie & Ooghe, Hubert, 2006. "35 years of studies on business failure: an overview of the classic statistical methodologies and their related problems," The British Accounting Review, Elsevier, vol. 38(1), pages 63-93.
    5. R. Slowinski & C. Zopounidis, 1995. "Application of the Rough Set Approach to Evaluation of Bankruptcy Risk," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 4(1), pages 27-41, March.
    6. Dimitras, A. I. & Slowinski, R. & Susmaga, R. & Zopounidis, C., 1999. "Business failure prediction using rough sets," European Journal of Operational Research, Elsevier, vol. 114(2), pages 263-280, April.
    7. Hubert Ooghe & Sofie Balcaen, 2007. "Are Failure Prediction Models Widely Usable? An Empirical Study Using a Belgian Dataset," Multinational Finance Journal, Multinational Finance Journal, vol. 11(1-2), pages 33-76, March-Jun.
    8. Chan, Pak To & Moshirian, Fariborz & Ng, David & Wu, Eliza, 2007. "The underperformance of the growth enterprise market in Hong Kong," Research in International Business and Finance, Elsevier, vol. 21(3), pages 428-446, September.
    9. Lam, Kevin C.K. & Mensah, Yaw M., 2006. "Auditors' decision-making under going-concern uncertainties in low litigation-risk environments: Evidence from Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 25(6), pages 706-739.
    10. Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
    11. Hsien-Chang Kuo & Lie-Huey Wang & Her-Jiun Sheu & Fa-Kuang Li, 2003. "Credit Evaluation for Small and Medium-sized Enterprises by the Examination of Firm-specific Financial Ratios and Non-financial Variables: Evidence from Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 5-20.
    12. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    13. Beaver, Wh, 1968. "Market Prices, Financial Ratios, And Prediction Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 179-192.
    14. Anna Vong & N. Zhao, 2008. "An examination of IPO underpricing in the growth enterprise market of Hong Kong," Applied Financial Economics, Taylor & Francis Journals, vol. 18(19), pages 1539-1547.
    15. Peter Back, 2005. "Explaining financial difficulties based on previous payment behavior, management background variables and financial ratios," European Accounting Review, Taylor & Francis Journals, vol. 14(4), pages 839-868.
    16. Mensah, Ym, 1984. "An Examination Of The Stationarity Of Multivariate Bankruptcy Prediction Models - A Methodological Study," Journal of Accounting Research, Wiley Blackwell, vol. 22(1), pages 380-395.
    17. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    18. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanghyo Lee & Kyunghwan Kim, 2015. "Collar Option Model for Managing the Cost Overrun Caused by Change Orders," Sustainability, MDPI, vol. 7(8), pages 1-15, August.
    2. Michał Thor & Łukasz Postek, 2024. "Gated recurrent unit network: A promising approach to corporate default prediction," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(5), pages 1131-1152, August.
    3. Jakub Horak & Tomas Krulicky & Zuzana Rowland & Veronika Machova, 2020. "Creating a Comprehensive Method for the Evaluation of a Company," Sustainability, MDPI, vol. 12(21), pages 1-23, November.
    4. Kyoung-jae Kim & Kichun Lee & Hyunchul Ahn, 2018. "Predicting Corporate Financial Sustainability Using Novel Business Analytics," Sustainability, MDPI, vol. 11(1), pages 1-17, December.
    5. Manchun Han & Sanghyo Lee & Jaejun Kim, 2019. "Effectiveness of Diversification Strategies for Ensuring Financial Sustainability of Construction Companies in the Republic of Korea," Sustainability, MDPI, vol. 11(11), pages 1-19, May.
    6. Ahsan Akbar & Minhas Akbar & Wenjin Tang & Muhammad Azeem Qureshi, 2019. "Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan," Sustainability, MDPI, vol. 11(3), pages 1-22, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. fernández, María t. Tascón & gutiérrez, Francisco J. Castaño, 2012. "Variables y Modelos Para La Identificación y Predicción Del Fracaso Empresarial: Revisión de La Investigación Empírica Reciente," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(1), pages 7-58.
    2. Şaban Çelik, 2013. "Micro Credit Risk Metrics: A Comprehensive Review," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 20(4), pages 233-272, October.
    3. Adriana Csikosova & Maria Janoskova & Katarina Culkova, 2020. "Application of Discriminant Analysis for Avoiding the Risk of Quarry Operation Failure," JRFM, MDPI, vol. 13(10), pages 1-14, September.
    4. du Jardin, Philippe & Séverin, Eric, 2011. "Predicting corporate bankruptcy using a self-organizing map: An empirical study to improve the forecasting horizon of a financial failure model," MPRA Paper 44262, University Library of Munich, Germany.
    5. Agarwal, Vineet & Taffler, Richard, 2008. "Comparing the performance of market-based and accounting-based bankruptcy prediction models," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1541-1551, August.
    6. Balcaen, Sofie & Ooghe, Hubert, 2006. "35 years of studies on business failure: an overview of the classic statistical methodologies and their related problems," The British Accounting Review, Elsevier, vol. 38(1), pages 63-93.
    7. Fayçal Mraihi, 2016. "Distressed Company Prediction Using Logistic Regression: Tunisian’s Case," Quarterly Journal of Business Studies, Research Academy of Social Sciences, vol. 2(1), pages 34-54.
    8. Mohammad Mahdi Mousavi & Jamal Ouenniche & Kaoru Tone, 2023. "A dynamic performance evaluation of distress prediction models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(4), pages 756-784, July.
    9. du Jardin, Philippe, 2015. "Bankruptcy prediction using terminal failure processes," European Journal of Operational Research, Elsevier, vol. 242(1), pages 286-303.
    10. du Jardin, Philippe, 2012. "The influence of variable selection methods on the accuracy of bankruptcy prediction models," MPRA Paper 44383, University Library of Munich, Germany.
    11. Fernando García & Francisco Guijarro & Ismael Moya, 2013. "Monitoring credit risk in the social economy sector by means of a binary goal programming model," Service Business, Springer;Pan-Pacific Business Association, vol. 7(3), pages 483-495, September.
    12. Rassoul Yazdipour & Richard Constand, 2010. "Predicting Firm Failure: A Behavioral Finance Perspective," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 14(3), pages 90-104, Fall.
    13. Layla Khoja & Maxwell Chipulu & Ranadeva Jayasekera, 2016. "Analysing corporate insolvency in the Gulf Cooperation Council using logistic regression and multidimensional scaling," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 483-518, April.
    14. Qunfeng LIAO & Seyed MEHDIAN, 2016. "Measuring Financial Distress And Predicting Corporate Bankruptcy: An Index Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 17, pages 33-51, June.
    15. Dimitras, A. I. & Zanakis, S. H. & Zopounidis, C., 1996. "A survey of business failures with an emphasis on prediction methods and industrial applications," European Journal of Operational Research, Elsevier, vol. 90(3), pages 487-513, May.
    16. repec:ath:journl:tome:34:v:2:y:2014:i:34:p:99-109 is not listed on IDEAS
    17. Michael Doumpos & Constantin Zopounidis, 1999. "A Multicriteria Discrimination Method for the Prediction of Financial Distress: The Case of Greece," Multinational Finance Journal, Multinational Finance Journal, vol. 3(2), pages 71-101, June.
    18. Philippe Jardin & David Veganzones & Eric Séverin, 2019. "Forecasting Corporate Bankruptcy Using Accrual-Based Models," Computational Economics, Springer;Society for Computational Economics, vol. 54(1), pages 7-43, June.
    19. Ioannis Tsolas, 2015. "Firm credit risk evaluation: a series two-stage DEA modeling framework," Annals of Operations Research, Springer, vol. 233(1), pages 483-500, October.
    20. Francesco Ciampi & Valentina Cillo & Fabio Fiano, 2020. "Combining Kohonen maps and prior payment behavior for small enterprise default prediction," Small Business Economics, Springer, vol. 54(4), pages 1007-1039, April.
    21. Jackson, Richard H.G. & Wood, Anthony, 2013. "The performance of insolvency prediction and credit risk models in the UK: A comparative study," The British Accounting Review, Elsevier, vol. 45(3), pages 183-202.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:7:y:2015:i:2:p:1186-1200:d:45039. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.