Ordered LOGIT Model approach for the determination of financial distress.

Abstract

Nowadays, as a result of the global competition encountered, numerous companies come up against financial distresses. To predict and take proactive approaches for those problems is quite important. Thus, the prediction of crisis and financial distress is essential in terms of revealing the financial condition of companies. In this study, financial ratios relating to 156 industrial firms that are quoted in the Istanbul Stock Exchange are used and probabilities of financial distress are predicted by means of an ordered logit regression model. By means of Altman's Z Score, the dependent variable is composed by scaling the level of risk. Thus, a model that can compose an early warning system and predict financial distress is proposed.