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Financial distress and bankruptcy prediction: an appropriate models for listed firms in Vietnam

By Pham Vo Ninh Binh (VNP 22)

Supervisor: Dr. Vo Hong Duc

Abstract

This paper aims to develop a comprehensive model, which is the first of its kind in Vietnam, for the purpose of financial distress and bankruptcy prediction of the Vietnamese listed firms. The entire research period from 2003-2016 considers the financial distress likelihood in different scenarios. Various factors are utilized in this study, including (i) Accounting factors obtained from the Emerging Market Score Model (EMS model); (ii) Market factors achieved from the distance to default model (DD); and (iii) Two macroeconomic indicators, the inflation and short-term interest rate. The Area Under the Receiver Operating Characteristics Curve (the AUC) is utilized to compare the usefulness of various default prediction models. Empirical findings from this study present evidence to support the view that factors derived from the accounting model, the market-based model, and typical macroeconomic fundamental factors have all contributed effect to the financial distress of Vietnamese listed firms for the research period when they are considered in isolation. However, when a comprehensive model is developed, the effect from accounting factors appear to be stronger in comparison with the market-based factors. Findings from this study also confirm that the model of default prediction including accounting factors with macroeconomic indicators appear to be performing much better than the market-based factors with macroeconomic fundamentals.

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