SEPTEMBER 1980 Ratio Stability and Corporate Failure ISMAEL G. DAMBOLENA and SARKIS J. KHOURY* THIS STUDY PRESENTS ANOTHER model on corporate failure that uses financial ratios and discriminant analysis as its core. We believe the final word on this methodology has not yet been said. The essential attribute of our model is its use of the stability of all financial ratios over time, as well as the level of these ratios, as explanatory variables in the derivation of a discriminant function. Our research indicated a substantial degree of instability, measured by (1) the standard deviation of the financial ratios over the past few years, (2) their standard error of estimate, and (3) their coefficient of variation, in the ratios of firms that went bankrupt when compared with those that did not. This instability showed a significant increase over time as the corporation approached failure (Figure 1). The inclusion of the stability of ratios in the analysis improved considerably the ability of the discriminant function to predict failure. Our model classified firms into failed and non-failed groups with 78 percent accuracy five years prior to failure. This represents a marked improvement over previously reported results. The next section outlines
The Journal of Finance – Wiley
Published: Sep 1, 1980
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera