A combination of a stationary and non-stationary model to predict corporate failure in South Africa

Court, Philip Wathen (1994) A combination of a stationary and non-stationary model to predict corporate failure in South Africa. PhD thesis, Rhodes University.

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Abstract

Business failure should be of concern in most industralised countries and the importance of accurately evaluating the phenomenon from a management and investment point of view is enormous. Were it possible to predict failure with a certain degree of confidence, steps could be taken to rectify the situation and the benefit would accrue to all of the stakeholders in the macroenvironment. In essence, the profitability of a business is influenced by two sets of variables. In the first instance, it is influenced by a variety of internal (microeconomic) variables which are firm- specific and which management is generally able to control. A further distinction in this regard may be made between the financial and non-financial variables. In the second instance, it is generally accepted that profitability will be influenced by a number of external (macroeconomic) variables which are generally beyond the control of management. In the main, however, the profitability of the firm is generally determined by a combination of both sets of factors. To date, a great deal of research has been undertaken in an attempt to establish a reliable model which may be used to predict failure. This has mainly been confined to the microeconomic variables which can be used to predict failure and attempts have been made to isolate either a single financial ratio or a number of financial and non-financial variables which can be used to model corporate failure. The research has met with a certain degree of success although this appears to be confined to the economic environment to which the models have been applied. The models are less successful when applied to other macroenvironments. Limited research has been undertaken into the macroeconomic variables which contribute to business failure or to a combination of the two types of variables. It is appropriate therefore that further consideration be given to the establishment of a model incorporating ALL the variables which could contribute to corporate failure. The purpose of this research is to undertake an investigation of micro- and macroeconomic variables that are freely available to reserachers and which may be used in a failure prediction model. The intention is to obtain a comprehensive, yet simple model which can be used as an overall predictor of PENDING failure.

Item Type:Thesis (PhD)
Uncontrolled Keywords:Variables, Microeconomic, Macroeconomic, Model, Failure prediction, Business failure, Financial variables, Profitability
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labour > HD28 Management. Industrial Management
Divisions:Faculty > Faculty of Commerce > Management
Supervisors:Staude, Gavin and Van der Watt, Philip
ID Code:3696
Deposited By: Philip Clarke
Deposited On:18 Oct 2012 12:08
Last Modified:18 Oct 2012 12:08
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