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- Title
A Principal Component Analysis--Multiple Discriminant Analysis Model for Predicition of Corporate Failure in India.
- Authors
Pai, G. A. Rekha; Annapoorani, R.; Pai, G. A. Vijayalakshmi
- Abstract
Corporate failure leads to acute financial embarrassment, which hampers the prospects of entrepreneurs and financial institutions in particular and the economy in general. Therefore a coherent framework to develop mathematical to predict or forecast potential industrial sickness has been attempted by various investigators. This study deals with the prediction of industrial sickness using Principal Component Analysis (PCA) augmented with Multivariate Discriminant Analysis (MDA). The data set constitutes 21 financial ratios of 34 Indian sick companies, which went sick in 2000-2001 and 38 contemporary non sick companies, both selected irrespective of size and industry category, one, two and three years prior to sickness. The PCA-MDA model developed showed greater accuracy in predicting industrial sickness up to 3 years prior to sickness. The model was validated further using a test case model and a forecast test model, which have exhibited very high predictive accuracy of the proposed model.
- Subjects
INDIA; BUSINESS failures; ENTREPRENEURSHIP; FINANCIAL institutions; PRINCIPAL components analysis; DISCRIMINANT analysis; FINANCIAL ratios
- Publication
Finance India, 2006, Vol 20, Issue 4, p1413
- ISSN
0970-3772
- Publication type
Article