Investigation of financial distress with a dynamic logit based on the linkage between liquidity and profitability status of listed firms

Apostolos G. Christopoulos, Ioannis G. Dokas, Petros Kalantonis and Theodora Koukkou

Journal of the Operational Research Society, 2019, vol. 70, issue 10, 1817-1829

Abstract: The scope of this paper is to investigate the predictability of financial distress, adopting a survival model based on dynamic logit for a sample of NYSE listed firms. The main assumption of this study is that liquidity and profitability constitute the key criteria for the configuration of financial distress status of a firm. Specifically, two independent models are applied for the period after the financial crisis of 2007–2008. The first model is constructed on the pillar of liquidity, and the classification into the subgroup of distressed firms is based on specific criteria such as current ratio, current liabilities / total liabilities, Equity / Liabilities and Total Debt / Total Asset. The second model is based on the pillar of profitability where the specific criteria for the classification from the primary group into the subgroup of distressed firms are ROE

Date: 2019
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DOI: 10.1080/01605682.2018.1460017

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