An investigation into the significance of certain firm-specific non-financial variables in a failure prediction model

Abstract

Most failure prediction models contain only financial ratios. There are nevertheless a number of firm-specific, non-financial ratios which could point to failure. This article attempts to Investigate the impact of some of these variables in a failure prediction model, it shows that the delay in publishing the financial statements as well as changes to the board of directors are the more significant predictors of failure. Secondly, it shows that a failure prediction model based solely on non-financial variables produces better results than a model containing only financial ratios. Finally, the inclusion of these variables In a failure prediction model improves its predictive ability.