- LOG(Total assets)
- LOG(Sales/total assets)
- Retained earnings/total assets
- Book value of equity/total liabilities
The classification results on the original sample for the K1 and K2 models are pre-
sented in Exhibit 10.14.
The K2 model contained the following ratios:
- LOG(Total assets)
- LOG(Sales/total assets)
- Retained earnings/total assets
- Market value of equity/total liabilities
The classification results on the original sample for the K2 models are presented
in Exhibit 10.15.
The authors note two major limitations of these models. First, because of lack of
data, the authors were unable to perform hold-out testing. Second, the Type II accu-
racy of 70% is perceived to be rather low. Both limitations will be removed if future
tests of the model yield usable predictions.
10.18 MALAYSIA
(a) Bidin (1988). The New Economic Policy launched by the Malaysian Govern-
ment in the early 1980s was aimed at increasing and redistributing corporate owner-
ship among the races in that country. The indigenous races in which the Malays form
the majority have a disproportionately small share of the corporate wealth. The gov-
ernment has set up a number of public corporations and enterprises to directly in-
volve the indigenous races in terms of ownership and the development of managerial
skills. Permodalan Nasional Berhad (PNB) is a corporation whose objective is to
evaluate, select, and acquire shares in corporations with good potential with the in-
tention of ultimately selling them to a unit trust fund. PNB is thus an investment in-
10 • 38 BUSINESS FAILURE CLASSIFICATION MODELSYears Prior to Failure No of Firms % Correctly Classified
1 34 97.1
2 34 88.2
3 33 69.7
4 32 50.0
5 16 68.8
Year No of Firms % Correctly Classified1988 57 77.2
1989 58 81.0
1990 59 83.1
1991 47 89.4
1992 29 93.1
Total 250 83.6
Exhibit 10.14. Classification Results—Bankrupt Firms K1 Model.