| Title : | Predictions of corporate failure: a case of Nepal | | Material Type: | printed text | | Authors: | Binita Dhungana, Author | | Publication Date: | 2013 | | Pagination: | 102p | | Size: | GRP/Thesis | | Accompanying material: | 1/B | | General note: | Including bibliography
| | Languages : | English | | Descriptors: | Bank and banking
Bank loans
Nepal
| | Keywords: | 'banks bank and banking nepal corporate' | | Class number: | 332.75 | | Abstract: | Corporate failure has become a common occurrence over a period of time leading towards the closure of the companies. The prediction of corporate failure is important to identify the financial performance of the companies. It is very important to identify the early warning signals associated with the failed companies of Nepal. The study focuses on the prediction of corporate failure by assessing the behavior of financial ratios of failed and healthy companies, test the significant difference of financial ratios of failed and healthy corporate, and analyze the predictive accuracy of ratios. In order to achieve the objectives of the study descriptive and exploratory research has been conducted. The research uses both the primary data and secondary data for the analysis of major symptoms of failure, identification of major financial ratios, and predictive accuracy of the variables under consideration. In this study the data are obtained from the total population of 198 banks and financial institutions categorized as commercial bank, development bank and finance companies. A total sample of twenty companies is as 10 failed and 10 healthy are paired on the basis of similar asset size, same year of declaration of failure. If the total liabilities of a company are greater than total assets then those corporate are identified as problematic or failed by Nepal Rastra Bank. For the study purpose descriptive analysis, profile analysis, univariate and multivariate discriminant analysis has been performed. Twenty eight financial ratios were used for the study that was categorized as liquidity, profitability, leverage, cash flow and other ratio In addition to this the primary research is conducted to find the consensus on financial ratio as predictors of corporate failure. For the primary research a total of 80 survey questionnaire was distributed among the banking practioners.The research findings demonstrates the ratios of failed corporate begins to deteriorate many year prior to failure. Similarly, liquidity, profitability, leverage and cash flow ratios of failed companies are found always poor in comparison to the healthy companies. The result of overall classification accuracy indicated the ability of discriminant analysis in classifying sample correctly at 84.1 percent. The multiple discriminant analysis indicated a total of twenty three ratios out of twenty eight ratios to be important variables. Further the MDA indicated the ratio of capital fund to risk weighted asset as the most influential and significant ratio. Moreover the primary analysis indicated the ratio of liquidity as the most important indicator of corporate failure followed by profitability, leverage and cash flow ratio. The ratio of total debt to total asset, ROA, ROE, current asset to current liabilities, CRR has been found to be more reliable and predictable ratio for corporate failure whereas the cash flow ratios are found to be less reliable.
The major symptoms and signals of corporate failure have been assessed from the study. Bad corporate governance has been ranked as the major reason for corporate failure along with violation of BAFIA, lack of transparency, overexposure to real estate loan, internal lending, unhealthy competition, weak management, overexposure to real estate loan, weak capital base, embezzlement by bank executive, ineffective financial risk assessment and management, inadequate financial planning and budgetary control, political instability, unexpected market condition, deterioration in economic growth rates and tendency of bankers to influence central bankers board member to decide in their favor respectively. The major reason for corporate failure is found to be decline in cash flow, increase in leverage of the corporate, decreasing net profit, increasing liquidity problem, worsening financial ratios, decreasing liquidity ratio and higher leverage. Transparency in accounting information, takeover of management by NRB and need for legal framework to facilitate rehabilitation of doomed corporate instead of forcing towards liquidation or failure is recommended for the failed corporate.
Therefore the ratios of healthy corporate were stable and positive in nature throughout the five year prior to failure. Whereas the ratios of failed corporate demonstrates a gradually deteriorating trend as the companies moves towards the verge of failure. The ratio of cash flow to current liabilities (CFCL) has excellent discriminatory power whereas the predictive power of cash flow to total debt ratio is much weaker. Thus the result indicates financial ratios can be used in the prediction of corporate failure.
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Predictions of corporate failure: a case of Nepal [printed text] / Binita Dhungana, Author . - 2013 . - 102p ; GRP/Thesis + 1/B. Including bibliography
Languages : English | Descriptors: | Bank and banking
Bank loans
Nepal
| | Keywords: | 'banks bank and banking nepal corporate' | | Class number: | 332.75 | | Abstract: | Corporate failure has become a common occurrence over a period of time leading towards the closure of the companies. The prediction of corporate failure is important to identify the financial performance of the companies. It is very important to identify the early warning signals associated with the failed companies of Nepal. The study focuses on the prediction of corporate failure by assessing the behavior of financial ratios of failed and healthy companies, test the significant difference of financial ratios of failed and healthy corporate, and analyze the predictive accuracy of ratios. In order to achieve the objectives of the study descriptive and exploratory research has been conducted. The research uses both the primary data and secondary data for the analysis of major symptoms of failure, identification of major financial ratios, and predictive accuracy of the variables under consideration. In this study the data are obtained from the total population of 198 banks and financial institutions categorized as commercial bank, development bank and finance companies. A total sample of twenty companies is as 10 failed and 10 healthy are paired on the basis of similar asset size, same year of declaration of failure. If the total liabilities of a company are greater than total assets then those corporate are identified as problematic or failed by Nepal Rastra Bank. For the study purpose descriptive analysis, profile analysis, univariate and multivariate discriminant analysis has been performed. Twenty eight financial ratios were used for the study that was categorized as liquidity, profitability, leverage, cash flow and other ratio In addition to this the primary research is conducted to find the consensus on financial ratio as predictors of corporate failure. For the primary research a total of 80 survey questionnaire was distributed among the banking practioners.The research findings demonstrates the ratios of failed corporate begins to deteriorate many year prior to failure. Similarly, liquidity, profitability, leverage and cash flow ratios of failed companies are found always poor in comparison to the healthy companies. The result of overall classification accuracy indicated the ability of discriminant analysis in classifying sample correctly at 84.1 percent. The multiple discriminant analysis indicated a total of twenty three ratios out of twenty eight ratios to be important variables. Further the MDA indicated the ratio of capital fund to risk weighted asset as the most influential and significant ratio. Moreover the primary analysis indicated the ratio of liquidity as the most important indicator of corporate failure followed by profitability, leverage and cash flow ratio. The ratio of total debt to total asset, ROA, ROE, current asset to current liabilities, CRR has been found to be more reliable and predictable ratio for corporate failure whereas the cash flow ratios are found to be less reliable.
The major symptoms and signals of corporate failure have been assessed from the study. Bad corporate governance has been ranked as the major reason for corporate failure along with violation of BAFIA, lack of transparency, overexposure to real estate loan, internal lending, unhealthy competition, weak management, overexposure to real estate loan, weak capital base, embezzlement by bank executive, ineffective financial risk assessment and management, inadequate financial planning and budgetary control, political instability, unexpected market condition, deterioration in economic growth rates and tendency of bankers to influence central bankers board member to decide in their favor respectively. The major reason for corporate failure is found to be decline in cash flow, increase in leverage of the corporate, decreasing net profit, increasing liquidity problem, worsening financial ratios, decreasing liquidity ratio and higher leverage. Transparency in accounting information, takeover of management by NRB and need for legal framework to facilitate rehabilitation of doomed corporate instead of forcing towards liquidation or failure is recommended for the failed corporate.
Therefore the ratios of healthy corporate were stable and positive in nature throughout the five year prior to failure. Whereas the ratios of failed corporate demonstrates a gradually deteriorating trend as the companies moves towards the verge of failure. The ratio of cash flow to current liabilities (CFCL) has excellent discriminatory power whereas the predictive power of cash flow to total debt ratio is much weaker. Thus the result indicates financial ratios can be used in the prediction of corporate failure.
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