Corporate Bankruptcy Prediction Model for Internet Startup Companies

Abstract

The purpose of this paper is to present a new approach to developing a financial distress prediction model that analyzes factors affecting success or failure of dot-com companies. In a new model, both demand side and supply side categories account for the performance of firms following IPOs. Huyghebaert et al. (2000) and Lewis et al. (2000) serve as a framework for the new model. This research uses a multiple discriminant analysis to build the proposed model. The demand side category includes an underwriter reputation factor and a market condition factor, while the supply side category includes a funds flow factor. The statistical results show that independent variables such as Gross Profit Margins, Cash Flows, Receivables, Accounts Payables, and Market Value are significant whereas Stock Holders’ Equities, Dividends, Capital Expenditures, and Inventories are insignificant.