Business Failure Prediction: A Tri-dimensional Approach

Authors

  • Alhassan Bunyaminu University of Professional Studies
  • Ibrahim Mohammed University of Professional Studies
  • Mohammed Issah University of Professional Studies

DOI:

https://doi.org/10.33423/jabe.v21i1.1456

Keywords:

Business, Economics, Finance, Tri-dimensional Approach, GSE

Abstract

Investigations of corporate failure prediction research usually implement binary classification into one of the distinguished groups – Distress or non-Distress companies. This study looks at a tri-dimensional approach which cluster firms into three (3) distinct dimensions namely - non-distress, semi-distressed and distressed. The study used secondary data from 2011 to 2015 obtained from the Ghana Stock Exchange (GSE) spanning across six industries, namely, Banking & Finance, Distribution, Food & Beverage, Insurance, Manufacturing and Mining & Oil. The study initially adopted the Altman (1968) Z score bankruptcy model to classify companies into non-distress, semi-distressed and distressed. Further analysis was conducted using the Hierarchical agglomerative cluster analysis to cluster companies into non-distress, semi-distressed and distressed. A comparison was then made between the Hierarchical agglomerative clustering against the Altman (1968) Z score bankruptcy classification to obtain higher classification. The outcome of the analysis revealed that the Hierarchical agglomerative cluster analysis and the Altman (1968) Z score bankruptcy model can both be used to classify companies into nondistress, semi-distressed and distressed based on the tri-dimensional approach instead of the binary classification (distressed and non-distressed). The study recommends that future research can explore other clustering methods for bankruptcy prediction to achieve higher and better classification.

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Published

2019-05-12

How to Cite

Bunyaminu, A., Mohammed, I., & Issah, M. (2019). Business Failure Prediction: A Tri-dimensional Approach. Journal of Applied Business and Economics, 21(2). https://doi.org/10.33423/jabe.v21i1.1456

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Articles