Prediction of financial distress companies in the trading and services sector in Malaysia using macroeconomic variables

Abstract

This study attempts to predict financial distress companies in the trading and services sector in Malaysia using financial distress companies as the dependent variable and macroeconomic variables and financial ratios as the independent variables. Logit Analysis was used as the analysis procedure because financial ratios do not have to be normal if it is used. It is also suitable when the dependent variable is binary in nature. Furthermore, it can also provide the probability of a company being financially distress. In addition, it can also provide us with the sign of the independent variable(s). This study found that the independent variables that can be used to predict financial distress companies in the trading and services sector in Malaysia were debt ratio, total assets turnover ratio, working capital ratio, net income to total assets ratio and base lending rate.