Prediction of distress and identification of potential M&As Targets in the UK

Gounopoulos, D (2011) Prediction of distress and identification of potential M&As Targets in the UK Managerial Finance.

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Abstract

Purpose

This study seeks to identify financial characteristics that can be employed to assess and predict corporate financial distress in publicly traded firms quoted in the London Stock Exchange.

Design/Methodology/Approach

The model incorporates three existing literatures as an alternative to bankruptcy. The model has two stages: the first stage discriminates financially healthy or distressed firms utilizing Binary Logit Regression while in the second stage with the use of the univariate analysis, firms are further categorized into four possible outcomes: financially healthy, potentially healthy targets and financially distressed or potentially distressed acquisition targets.

Findings

It was found that financial distress could be identified even three years prior the event. Moreover, statistical significant differences were found between the four firm sample groups.

Research limitations / implications

The vast changing environment and the financial crisis, highlight the need for future research on the area that will consider the world trade implications along with the individual macroeconomic variables of each country.

Originality / Value

It is the first time that a model is developed for the United Kingdom to follow the hazard model’s procedure based on recent financial data. Moreover, due to the scope of the analysis, a new version of the latter procedure is employed. A further innovation that makes the produced model unique is its ability to classify a firm into one of several a priori groupings according to the latter’s individual characteristics. This overcomes the limitation of earlier studies that considered only two possible outcomes for firms.

Item Type:	Article
Divisions :	Faculty of Arts and Social Sciences > Surrey Business School
Authors :	Name Email ORCID Gounopoulos, D UNSPECIFIED UNSPECIFIED
Date :	15 May 2011
Identification Number :	10.1108/03074351211266801
Copyright Disclaimer :	This article is © Emerald Group Publishing and permission has been granted for this version to appear here. Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.
Uncontrolled Keywords :	Financial Distress, Distress Prediction, Bankruptcy, Merger & Acquisitions, Merger as an alternative to bankruptcy, strategic management, decision making
Depositing User :	Symplectic Elements
Date Deposited :	18 Feb 2014 17:39
Last Modified :	05 Oct 2017 12:54
URI:	http://epubs.surrey.ac.uk/id/eprint/154532

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