Business Failure Prediction (BFP) An Empirical Study on Ethiopian Private Enterprises
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Date
2011-06
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Addis Ababa University
Abstract
This study is an attempt to test and develop business failure prediction model for
enterprises in Ethiopia using multivariate analyses. The study looked at the
financial statements using a sample of ten failed and ten non-failed enterprises
matched by industry and asset size from the recent 2005-2009 period and used
five different financial ratios from liquidity, solvency, leverage, and profitability
categories as classifying variables. It applied a revised Altman model developed
for private companies to the sample and found that the performance of the model
was not strong with successful classification rates of 70% and 65% one and two
years prior to failure event respectively. Finally, using a stepwise MDA
methodology, the study developed a new model that deemed to suitable in
Ethiopian context and found that the model achieved considerable improvement
in the successful classification rate that reached 85% and 70% one and two
years prior to failure respectively.
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Keywords
Business Failure Prediction