Title: Logit model for predicting financial distress in Indian corporate sector

Authors: Gurmeet Singh; Ravi Singla

Addresses: Chitkara Business School, Chitkara University, Punjab, India ' University School of Applied Management, Punjabi University, Patiala, India

Abstract: Financial distress prediction is the interest area for many academicians and researchers as it adversely affects every economy and have important consequences for shareholders, creditors, investors, managers, employees and even government. The purpose of the study is to develop a model based on financial ratios by employing logistic regression to predict the likelihood of financial distress in Indian corporate sector. To validate the accuracy of the newly developed model two diagnostic tests viz. testing sample and receiver operating characteristic (ROC) curve are used. Both diagnostic tests validate that the newly developed financial distress prediction model achieved higher predictive power on testing sample, and area under the ROC curve of the developed model for testing sample is found to be 0.884 which indicates that model is good and has higher predictive power.

Keywords: financial distress prediction; financial ratios; logistic regression; receiver operating characteristic curve; ROC; non-performing assets; NPA.

DOI: 10.1504/IJBG.2024.140052

International Journal of Business and Globalisation, 2024 Vol.37 No.4, pp.516 - 534

Received: 08 Jun 2019
Accepted: 14 Oct 2020
Published online: 17 Jul 2024 *

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