Abstract
The Malaysian economy suffered serious consequences from the 1997 Asian financial crisis. As a consequence, many listed companies became financially distressed due to mounting debts, huge accumulated losses, and poor cash flows. Under the provisions of Practice Note 4/2001 (PN4), issued by the Bursa Malaysia on February 15, 2001, 91 public listed companies, after fulfilling the criteria of PN4, were classified as financially distressed companies. Financial distress precedes bankruptcy; however, not all financially distressed companies will end up in bankruptcy. The main purpose of this paper is to use financial variables to predict potential financially distressed firms using the logistic regression model. Then the predictive ability of the prediction model was analyzed and the findings are encouraging and consistent for the sample analyzed and the period of study.
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