Many companies have occurred financial distress, such as Enron, WorldCom, Procomp and Infodisc. Lehman Brothers also bankrupted in 2008. These companies bankrupted with no early warning signs. Investors are afraid of their stocks changing as tank stocks suddenly. Therefore, if there is a financial distress warning model that can prepare in advance, and avoid losing much money.
Considering the type of industry and firm size, this study adopts the samples of distressed companies in Taiwan from 2006 to 2010. This study also employs Logistic regression to analyze 171 companies and match the distressed and healthy companies in one to two.
This study aims to realize whether to add non-financial variables in the warning model can improve the ability of warning comparing with those just using financial variables. Hopefully, this warning model can provide the investors to classify companies whether they may occur financial distress and to reduce the investment and credit risks. The major result shows that the model which adds in non-financial variables has a better predicting ability.
