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The Use of Accounting Data to Predict Bank Financial Distress in MENA Countries

Author

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  • Isabelle Distinguin

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Iftekhar Hasan
  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

Using an innovative approach of following the downgrade or credit rating decisions by rating agencies, this paper develops an early-warning system of bank financial distress and critically evaluates the reliability and stability of the potential indicators or factors of banks in 13 emerging economies in the MENA region. Evidence portrays that the capital, asset quality, earnings, and liquidity ratios are accurate accounting indicators to predict bank financial distress. However, we observe that influence of factors vary across size of the banks as accounting information does not appear reliable to predict bank financial distress of small banks. By contrast, the balance sheet structure of banks (both the asset side and liability side) does not affect the accuracy of accounting indicators.
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Suggested Citation

  • Isabelle Distinguin & Iftekhar Hasan & Amine Tarazi, 2011. "The Use of Accounting Data to Predict Bank Financial Distress in MENA Countries," Post-Print hal-00966477, HAL.
    • Handle: RePEc:hal:journl:hal-00966477
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    References listed on IDEAS

    as
    1. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    4. Jeffery W. Gunther & Mark E. Levonian & Robert R. Moore, 2001. "Can the stock market tell bank supervisors anything they don't already know?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 2-9.
    5. Isabelle Distinguin & Philippe Rous & Amine Tarazi, 2006. "Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress," Journal of Financial Services Research, Springer;Western Finance Association, vol. 30(2), pages 151-176, October.
    6. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," The World Bank Economic Review, World Bank, vol. 14(2), pages 287-307, May.
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    Cited by:

    1. Elamer, Ahmed A. & Ntim, Collins G. & Abdou, Hussein A. & Pyke, Chris, 2020. "Sharia supervisory boards, governance structures and operational risk disclosures: Evidence from Islamic banks in MENA countries," Global Finance Journal, Elsevier, vol. 46(C).
    2. Citterio, Alberto, 2024. "Bank failure prediction models: Review and outlook," Socio-Economic Planning Sciences, Elsevier, vol. 92(C).
    3. ElBannan, Mona A., 2021. "On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries," Emerging Markets Review, Elsevier, vol. 47(C).

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