Financial Distress Prediction in China

We use four alternative prediction models to examine the usefulness of financial ratios in predicting business failure in China. China has unique legislation regarding business failure so it is an interesting laboratory for such a study. Earnings Before Interest and Tax to Total Assets (EBITTA), Earning Per Share (EPS), Total Debt to Total Assets (TDTA), Price to Book (PB), and the Current Ratio (CR), are shown to be significant predictors. Prediction accuracy achieves a range from 78% to 93%. Logit and Neural Network models are shown to be the optimal prediction models.