Bankruptcy Prediction for Restaurant Firms: A Comparative Analysis of Multiple Discriminant Analysis and Logistic Regression

In this paper, we used data from publicly traded restaurant firms between 2000 and 2019 to test the effectiveness of multiple discriminant analysis (MDA) and logistic regression (logit) in predicting the probability of bankruptcy in the restaurant industry. We constructed various financial ratios extracted from the financial information and analyzed them to determine the optimal models. Our results show that liquid ratios (particularly the quick ratio), operating cash flow, and working capital emerge as the most crucial indicators of potential bankruptcy filings for restaurant firms. The results also show that the logit model performs better within the sample. However, both models exhibit similar predictive capacities with out-of-sample data.

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Publication Details

Journal
Journal of risk and financial management
Published
2024-09-06
DOI
https://doi.org/10.3390/jrfm17090399
Citations
5
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
Field-Weighted Citation Impact
4.73
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article

Bankruptcy Prediction for Restaurant Firms: A Comparative Analysis of Multiple Discriminant Analysis and Logistic Regression

Yang Huo, Doug Miller, Leo H. Chan
5 citations
Journal of risk and financial management
Financial Distress and Bankruptcy Prediction
4.73
article

Bankruptcy Prediction for Restaurant Firms: A Comparative Analysis of Multiple Discriminant Analysis and Logistic Regression

Yang Huo, Doug Miller, Leo H. Chan
article en
5 citations

Abstract

In this paper, we used data from publicly traded restaurant firms between 2000 and 2019 to test the effectiveness of multiple discriminant analysis (MDA) and logistic regression (logit) in predicting the probability of bankruptcy in the restaurant industry. We constructed various financial ratios extracted from the financial information and analyzed them to determine the optimal models. Our results show that liquid ratios (particularly the quick ratio), operating cash flow, and working capital emerge as the most crucial indicators of potential bankruptcy filings for restaurant firms. The results also show that the logit model performs better within the sample. However, both models exhibit similar predictive capacities with out-of-sample data.

Journal of risk and financial managementVol. 17(9)
Utah Valley University (US)
Openalex Percentile: Top 5%
Financial Distress and Bankruptcy Prediction
4.73
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