Using Accounting Ratios in Predicting Financial Distress: An Empirical Investigation in the Vietnam Stock Market

Abstract

     Financial distress prediction is an important and practical research topic for many stakeholders and has attracted extensive studies over the past decades. This paper investigates the challenging issue of financial distress in Vietnam by distinguishing "healthy" companies from "financially distressed" companies using a data sample of firms listed on the Ho Chi Minh City Stock Exchange. Employing the logistic regression model to predict financial distress with a unique data set, we characterize the determinants of financial distress in terms of firm accounting and financial ratios over the period from 2007 to 2012. The results indicate that financial ratios can be employed as an early warning of financial distress as financial ratios are significantly correlated with the probability of firm financial distress.