TY - JOUR
T1 - Forecasting corporate financial distress in the Southeast Asian countries
T2 - A market-based approach
AU - Dinh, Dung V.
AU - Powell, Robert J.
AU - Vo, Duc H.
PY - 2021/6
Y1 - 2021/6
N2 - This study is conducted to investigate the prediction of corporate financial distress based on the Merton (1974) market-based Distance to Default (DD) model over the period from 1997 to 2016 which covers a range of economic financial circumstances, including the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC). The study focusses on the six largest countries in the ASEAN Economic Community (AEC), comprising of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unlike previous studies which focus mainly on bankruptcy, this paper focusses on early warning distress indicators that signal distress well before bankruptcy. This is when firms experience difficulty in servicing debt as measured by interest coverage ratio (ICR) at a firm level and non-performing loans (NPLs) at a country level. Key empirical findings from this paper indicate that the market-based distance-to-default (DD) model is generally a good early warning indicator of financial distress in the following year, particularly for ICR, but that prediction accuracy varies between individual countries in the Southeast Asian region.
AB - This study is conducted to investigate the prediction of corporate financial distress based on the Merton (1974) market-based Distance to Default (DD) model over the period from 1997 to 2016 which covers a range of economic financial circumstances, including the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC). The study focusses on the six largest countries in the ASEAN Economic Community (AEC), comprising of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unlike previous studies which focus mainly on bankruptcy, this paper focusses on early warning distress indicators that signal distress well before bankruptcy. This is when firms experience difficulty in servicing debt as measured by interest coverage ratio (ICR) at a firm level and non-performing loans (NPLs) at a country level. Key empirical findings from this paper indicate that the market-based distance-to-default (DD) model is generally a good early warning indicator of financial distress in the following year, particularly for ICR, but that prediction accuracy varies between individual countries in the Southeast Asian region.
KW - ASEAN
KW - Corporate financial distress
KW - Distance-to-Default
KW - Interest coverage ratio
KW - Non-performing loans
UR - http://www.scopus.com/inward/record.url?scp=85102280220&partnerID=8YFLogxK
U2 - 10.1016/j.asieco.2021.101293
DO - 10.1016/j.asieco.2021.101293
M3 - Article
AN - SCOPUS:85102280220
SN - 1049-0078
VL - 74
JO - Journal of Asian Economics
JF - Journal of Asian Economics
M1 - 101293
ER -