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ENCOUNTER FINANCIAL DISTRESS IN THE CRISIS 2008-2009: A comprehensive study of factors which possess the ability to predict financial distress among the firms listed on the Nasdaq OMX First North

Göransson, Stephanie LU and Hernqvist, Thomas LU (2012) BUSN88 20121
Department of Business Administration
Abstract
The purpose of this paper is to determine the factors which possess the ability to predict the probability to encounter financial distress during a financial crisis. It is of particular interest to test whether financial leverage has a significant effect on financial distress since prior studies as Graham et al. (2011) advocates that the likelihood of financial distress can be explained by a firm’s indebtedness and credit rating. The firms listed on Nasdaq OMX First North 2007-12-31, are examined during the period; 2007-12-31 to 2011-12-31, to determine what pre-financial crises characteristics can predict the probability to encounter financial distress during a financial crisis and the subsequent economic downturn. The investigation is... (More)
The purpose of this paper is to determine the factors which possess the ability to predict the probability to encounter financial distress during a financial crisis. It is of particular interest to test whether financial leverage has a significant effect on financial distress since prior studies as Graham et al. (2011) advocates that the likelihood of financial distress can be explained by a firm’s indebtedness and credit rating. The firms listed on Nasdaq OMX First North 2007-12-31, are examined during the period; 2007-12-31 to 2011-12-31, to determine what pre-financial crises characteristics can predict the probability to encounter financial distress during a financial crisis and the subsequent economic downturn. The investigation is done using logistic regression analysis to asses the probability of financial distress. The theoretical framework is based on previous research within the field of financial distress prediction during times of stable and unstable macro-economical conditions.The obtained results determine age, liquidity and profitability to have the ability to predict the probability to encounter financial distress during the financial crisis 2008-2009. The result in this study differs from the results by Graham et al. (2011), as financial leverage surprisingly turned out to have an insignificant predictable power of financial distress. (Less)
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author
Göransson, Stephanie LU and Hernqvist, Thomas LU
supervisor
organization
course
BUSN88 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
Credit rating Financial crisis Financial distress Financial flexibility Financial leverage Logistic regression Probability of financial distress
language
English
id
2798127
date added to LUP
2012-06-29 11:21:49
date last changed
2012-06-29 11:21:49
@misc{2798127,
  abstract     = {The purpose of this paper is to determine the factors which possess the ability to predict the probability to encounter financial distress during a financial crisis. It is of particular interest to test whether financial leverage has a significant effect on financial distress since prior studies as Graham et al. (2011) advocates that the likelihood of financial distress can be explained by a firm’s indebtedness and credit rating. The firms listed on Nasdaq OMX First North 2007-12-31, are examined during the period; 2007-12-31 to 2011-12-31, to determine what pre-financial crises characteristics can predict the probability to encounter financial distress during a financial crisis and the subsequent economic downturn. The investigation is done using logistic regression analysis to asses the probability of financial distress. The theoretical framework is based on previous research within the field of financial distress prediction during times of stable and unstable macro-economical conditions.The obtained results determine age, liquidity and profitability to have the ability to predict the probability to encounter financial distress during the financial crisis 2008-2009. The result in this study differs from the results by Graham et al. (2011), as financial leverage surprisingly turned out to have an insignificant predictable power of financial distress.},
  author       = {Göransson, Stephanie and Hernqvist, Thomas},
  keyword      = {Credit rating Financial crisis Financial distress Financial flexibility Financial leverage Logistic regression Probability of financial distress},
  language     = {eng},
  note         = {Student Paper},
  title        = {ENCOUNTER FINANCIAL DISTRESS IN THE CRISIS 2008-2009: A comprehensive study of factors which possess the ability to predict financial distress among the firms listed on the Nasdaq OMX First North},
  year         = {2012},
}