Probabilistic prediction of business failure / Livan Wan Laeng

The failure of a firm, although not common, is very costly to the suppliers of capital because reorganisation or liquidation cost may consume a large portion of the wealth of the firm. In order to avoid this costly exercise, it is of great importance for the potential suppliers of capital to not only have an insight of a firm's present performances but also be able to foresee, or at least, predict its future performances before making a decision. So what they need is not merely a traditional sequential ratio comparisions technique but a more vigorous statistical technique such as a multiple variables analysis. Therefore, a bankruptcy prediction model which predicts potential business failure as early as possible is the most desirable.