Analysis financial distress agriculture and food materials industry with an emphasis on the role of Macroeconomic and accounting variables

Document Type : Research Paper

Authors

• seyed hesam vaghfi ¹
• zohre heydari ²
• samiran khajezade ³
• S. kamranrad ⁴

¹ Department of Management,Economics and Accounting, Payame Noor University,Tehran,Iran

² Instructor, Department of Accounting, Kosar University of Bojnord, Bojnord, Iran.

³ Ph.D. Student in Financial Engineering, Islamic Azad University, Qods City Branch.

⁴ Department of Management,Economics and Accounting, Payame Noor University,Tehran,Iran.

Abstract

Analysis financial distress is an important phenomenon for investors, creditors and other users of financial information. Determining the probability of a company’s distress before occurrence of distress and bankruptcy is considered a very interesting and attractive subject and can be useful for both managers, and investors and creditors. In this study, using the information of 6 financial years during the period 2011 to 2016 in industry agriculture and food materials industry, the factors affecting financial distress and predicting it through methods based on machine learning (NBC and AdaBoost) have been studied. The results of the study indicate direct impack and inflationon, indirect impact of the ratio of non-executive directors, Stock returns, the ratio of operating cash flow financial distress. The results also show that AdaBoost method, using financial and economic data, has higher capability in predicting financial distress compared to NBC method.

Keywords

• financial distress
• NBC Algorithm
• AdaBoost Algorithm

20.1001.1.20086407.1399.12.47.9.3

---

References

- Abozari, A. ShahikiTash, M.N. &Taleblo, R. (2014). The Connection between Systematic Risk and Corporate Income Tax (A case study of the Tehran Stock Exchange). Journal of Economic Research. Volume 14, Issue 54 Pages 101-132. )in Persian).

- Ahmadi, S.Sh. (2016). Investigating the Relationship between Corporate Governance and Systematic Risk with Financial Distress in Companies Accepted in Tehran Stock Exchange. Master's Thesis. )in Persian).

- Altman, E.I. (1968). Financial ratios, discriminant analysis and prediction of corporate bankruptcy, Journal of Finance, 23,589-609.

- Altman,E.I., Haldeman, R.G, & Narayanan, P. (1977). ZETA ANALYSIS, a new model to identify bankruptcy risk of corporations. Journal of Banking Finance, )1(,29-54.

- Bahrami, A. & Dastgir, M. (2014). An Investigation the Information Content of Asset Turnover/Profit Margin Model in Determining of Earnings Management,, Empirical Studies in Financial Accounting Volume 11, Issue 43 Pages 89-110. )in Persian).

- Bayat, R. Shabani, M. Kalantari, M.H. (2016). A Study of the Impact of Investment on Intangible Assets on Future Operating Cash Flows of Companies Accepted in Tehran Stock Exchange, Journal of Management Studies and AccountingVolume 2, Issue 1 Pages 97-85. )in Persian).

- Bredart, X. (2014). Financial Distress and Corporate Governance around Lehman Brothers Bankruptcy. International Business Research, 7 (5): 1-8.

- Brewer, B. E., Wilson, C.A., Featherstone, A. M., Harris, J.M., Erickson, K. & Hallahan. (2012). Measuring the Financial Health of U.S. Production Agriculture.

- Chang, C. (2009). The Corporate Governance Characteristics of Financially Distressed Firms: Evidence from Taiwan. The Journal of American Academy of Business, 15 (1): 125-132.

- Emilia Garcia-Appendini. (2017).Financial distress and corporate investment Review of Economics and Statistics, 78 (1), 1-15.

- Fadaei Nejad, M.E. shahryari, S. Salim, F. (2015). A relation of the distress risk and equity returns puzzle- Empirical evidence from the Tehran Stock Exchange, Journal of Asset management and financial، Volume 3, Issue 2، Page 54-33) in Persian).

- Fadaei Nejad, M. E. Shahriyari, S. Salim, F. (2015). An analysis of the relationship between financial distress risk and equity returns, Journal of the Accounting and auditing Review, Volume 22, Issue 2,Page 243-262. )in Persian).

- Fathi, S. (2005). Financial risk, indexing and measurement, Tadbir Monthly) Volume 16, Issue 168, Pages 54-59) in Persian).

- Fich, E. & Slezak, S. (2008). Can Corporate Governance Save Distressed Firms from Bankruptcy? An Empirical Analysis. Review of Quantitative Finance and Accounting, 30 (2): 225-251.

- Fister, I., et al. (2013). "A comprehensive review of firefly algorithms". Swarm and Evolutionary Computation 13: 34-46.

- Foroughi, D. & Mazaheri, M. (2013). Examining the impact of financial leverage and financial distress risk on real return on stocks in companies listed in Tehran Stock Exchange; Scientific-Research Quarterly of Financial Accounting; 5^th year, No. 18, summer 2013, pp. 46-61. )in Persian).

- Gang, W.، Yan, Ch. & Gang, Ch. (2018).A new random subspace method incorporating sentiment and textual information for financial distress prediction، Electronic Commerce Research and Applications. 29, 30-49.

- Hernandez, M.T, & Wilson, N. (2013). “Financial Distress and BankruptcyPrediction among Listed Companies Using Accounting, Market andMacroeconomic Variables”, International Review of Financial Analysis,2(13),1-26.

- Kashanipour, M. & Rasaian, A. (2009). Q Relationship between Tubing and Performance Evaluation Criteria in Iran, Quarterly Financial Accounting Volume 3, Number 12, Page 146 to 131. )in Persian).

- Kim, C.S, Mauer, D.C, & Sherman, A.E. (1998). The determinants of corporate liquidity. Theory and evidence. Journal of Financial and Quantitative Analysis. (33), 305- 334.

- Komijanie, A. & Sa'adatfar, Javad .(2006). Application of Artificial Neural Network Models in Predicting Economic Bankruptcy of the Registered Corporations in Stock Market Journal of Economic Literature Volume 3, Number 6, Page 43 to 11. )in Persian).

- Kuncheva, L. I., (2006). "Combining Pattern Classifiers Methods and Algorithms", John Wiley & Sons, Inc., New Jersey.

- Li, Z., Crook, J., & Andreeva, G. (2015). Corporate Governance and FinancialDistress: a Discrete Time Hazard Prediction Model, Retrieved from http://ssrn.com/abstract=2635763.

-Mashayekhi, B. & Ganji, H.R. (2014). Examining the impact of earnings quality on bankruptcy prediction using artificial neural network, Financial Accounting and Auditing Research; Article 6, Vol. 6, No. 22, summer 2014, pp. 147-173. )in Persian).

- MeshkiMiavaghi, M. & Hashemi, Maryam. (2015). Investigating the Relationship between Corporate Governance with Bankruptcy Probability in Companies Listed in Tehran Stock Exchange Journal of " Research in Accounting and Auditing Volume 5, Number 2, Page 37 to 58. )in Persian).

- Mollai, E. & Khazdozi, B. (2015). The effect of liquidity level on financial risk risk of companies listed on the Tehran Stock Exchange, Industrial Management (Azad Sanandaj),, Volume 10 No. 34. )in Persian).

- Moradi, M. Saeedi, M. & Rezaei, H.R. (2013). Investigating the effect of size and independence of the board of directors on the representation costs of companies listed on the Tehran Stock Exchange, Experimental accounting research Auditing Volume 2, Number 7, Page 53 to 35. )in Persian).

- Ohlson, J. A. (1980). "Financial Ratios and the Probabilistic Prediction of Bankruptcy." Journal of Accounting Research (Spring), 109-131.

- Outecheva, N. (2007). Corporate Financial Distress: An Empirical Analysis of Distress Risk. University of St. Gallen, Switzerland.

- Ozkan, A, & Ozkan, N. (2004). Corporate cash holdings: an empirical investigation of 11- UK companies. Journal of Banking and Finance. (28), 2103- 2134.

- Prayesh, R. Dadashi Arani, H. & Barzgar, M.R. (2017). Presentation of Math Model for Bankruptcy Prediction of Companies Accepted in Tehran Stock Exchange, Accounting and Audit Research, 8(31), page 187-200. )in Persian).

- Rahimian, N. & Tavakolnia, E. (2013). Financial leverage and its relationship with financial distress and growth opportunities in companies listed in Tehran Stock Exchange (linear and curvature relationships); Quarterly of Financial Accounting; 5 (20), pp. 108-129. )in Persian).

- Rahnama Rudpashti, F. & Khan Mohammadi, M.H. (2011)An Investigation & Comparison between Accounting Measures of Performance Evaluation & value-Based Measures in Estimating the Companies’ Economic Rate of Return, Financial Knowledge of Securities Analysis Volume 10,Pages 19-43. )in Persian).

- Ramooz, N. & Mahmoudi, M. (2017). The Prediction of the Risk of Financial Bankruptcy Using Hybrid Model in Tehran Stock Exchange, Journal of financial management strategy, Volume 5, Issue - Issue Serial Number 16, Spring 2017, Page 51-75. )in Persian).

- ReturnsPengjie Gao Christopher A. Parsons Jianfeng Shen. (2017).Global Relation between Financial Distress and Equity the Review of Financial Studies, hhx060, https://doi.org/10.1093/rfs/hhx060 Published.

- Robinson, D, Robinson, M. & Sisneros, C. (2012). “Bankruptcy outcomes:Does the board matter?”, Journal of Advances in Accounting, 28(2), 270–278.

- Rostamian, F. Khodaei Valaza Qard, M. & Haidar, M. (2011). The relationship between profit quality characteristics and performance, Journal of Financial Accounting and Auditing Research Volume 3, Number 12 Pages 79-112. )in Persian).

- Sadeghi, H. Rahimi, P. Salmani, Y. (2013). The Effect of Macroeconomic and Governance Factors on Financial Distress i Manufacture Firms Listed in Tehran Stock Exchange, FINANCIAL monetary economics,Vol. 21, No. 8, page 107-127. )in Persian).

- Saeedi, A. & Aghaei, A.(2009) A review of bankruptcy forecasting methods and models Journal of Accounting Knowledge and Research. Volume 16 )in Persian).

- Sayari, N. & & Mugan, C. S. (2016). Industry specific financial distress modeling. BRQ Business Research Quarterly, 20) 1(, 45-62.

- Setayesh, M. H. & Mansouri, Sh. (2014). The comparative investigation of corporate governance mechanisms in financial distressed and non-financial distressed listed companies of Tehran Stock Exchange, Journal oh financial Research, Volume 16, Issue 1 (Spring and Summer), Page 99-112. )in Persian).

- Sheri, Saber. & Marfou, M. (2007). The Relationship between the Percentage of Outside Directors and Institutional Investors with Properties of Earnings Forecast, Volume 5, Issue 17, Pages 63-104 )in Persian).

- Shirata Cindy Yoshiko. (1998). Financial Ratios as Predictors of Bankruptcy in Japan: An Enprical Research 12 empirical study in Japan. APIRA 1998.,1-18.

- Soleimani, A. & Memarian, Sh. (2012). The relationship between economic profit and accounting profit, and equity in top companies listed in Tehran capital market; Journal of Economics - Two Monthly of Studying Economic Issues and Policies, No. 7 and 8, October and November, 2012, pp. 75-92. )in Persian).

- Talebnia, Gh. Jahanshad, Azita. & Pourzamani, Z. (2009). Evaluating the Efficiency of Financial Variables and Economic Variables in the Forecasting of the Financial Crisis of Companies Investigated to Companies Accepted in Tehran Stock Exchange, Accounting and auditing reviews, vol 16, No 55, Page 67-84. )in Persian).

- wing Yu, i. Ho, F. Law, E. & Fung, L. (2003). An Analysis of the Financial Health of Hong Kong Corporations.

- Zmijewski. M.E. (1984). Method logical Issues Relate to the Estimation of Financial Distress prediction Models, Journal of Accounting Research, 22, 59-82.