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In order to found financial distress predictive model for banks and financial companies, the study establishes a predictive model of financial distress by expanding the samples and the definition of financial distress of previous studies. The sample separates them into two parts. One establishes financial distress predictive model for stocks companies listed in Taiwan Stock Exchange Corporation. The other is for banking institutions financing over thirty million dollars for public-trade segments. However, judging from the definition of financial distress, the meaning of financial distress company lies on the stock companies listed in Taiwan stock exchange corporations whose stocks are required to be full delivery, temporary suspend and stopping suspension From the appearance of the banking loan public-traded market, the definition of the financial distress firms indicates that the receivables of these firms become overdue, on demand, and bad debt. Using the matched pairs designed, the sample of financial distress firms and healthy firms were drawn in the same industry and approximately the same asset size and fiscal year. Furthermore, this study also discusses the financial characteristic of financial distress companies. In addition, the companies with financial distress are discussed in the study.
From the viewpoint of variable of financial distress predictive model, seven financial rations practiced by banks are selected in this study. Moreover, audit opinions about going-concern or significant uncertain and cash flow ratio are also included in the study.
The study includes thirty financial distress firms and fifty-five healthy firms in listed market from 1995 to 1999. It also contains sixty companies whose receivables become overdue, on demand and bad debt, related sixty healthy firms, forty-one firms whose receivables become bad debt, and related forty-one healthy firms from 1995 to1998. The future developments of these financial distress firms from 1993 to 1997 are discussed in the study.
In all samples, using the test of mean difference population of two groups, the financial distress firms and healthy firms have significant difference on the firms’ ability to pay interests and the cash flow of financial activity. In the alarm logistic model of financial distress, the cash flow from financial activity is as an important predictor. These both imply cash flow from financial activity can predict the probability of firm to appear financial distress or the latter financial situation of the financial distress firms. In addition, in listed company sample finds the possibility of financial distress is positively associated with the CPA’s opinion about going-concern or significant uncertainly. And the model’s prediction with CPA’s opinion is more correct than the one without CPA opinion in the listed market, but, however, the result is not founded in the public-traded firms with default or bad debt.
The percentage of correctly predicted of the financial characteristic of financial distress companies of model is 62.84%. The prediction is more correct with the close to the year of financial distress excluding the traded-public firms with default. The percentages of correctly classified firm in the listed firms, and the public-traded firms incurred default, in the public- traded firms incurred bad debt is 67.69%-95.08%, 58.43%-80%, 57.14%-78.57%, respectively.
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