{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,2,17]],"date-time":"2026-02-17T11:46:28Z","timestamp":1771328788711,"version":"3.50.1"},"reference-count":72,"publisher":"MDPI AG","issue":"2","license":[{"start":{"date-parts":[[2019,4,4]],"date-time":"2019-04-04T00:00:00Z","timestamp":1554336000000},"content-version":"vor","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":["JRFM"],"abstract":"<jats:p>Purpose: This study aims to compare the prediction accuracy of traditional distress prediction models for the firms which are at an early and advanced stage of distress in an emerging market, Pakistan, during 2001\u20132015. Design\/methodology\/approach: The methodology involves constructing model scores for financially distressed and stable firms and then comparing the prediction accuracy of the models with the original position. In addition to the testing for the whole sample period, comparison of the accuracy of the distress prediction models before, during, and after the financial crisis was also done. Findings: The results indicate that the three-variable probit model has the highest overall prediction accuracy for our sample, while the Z-score model more accurately predicts insolvency for both types of firms, i.e., those that are at an early stage as well as those that are at an advanced stage of financial distress. Furthermore, the study concludes that the predictive ability of all the traditional financial distress prediction models declines during the period of the financial crisis. Originality\/value: An important contribution is the widening of the definition of financially distressed firms to consider the early warning signs related to failure in dividend\/bonus declaration, quotation of face value, annual general meeting, and listing fee. Further, the results suggest that there is a need to develop a model by identifying variables which will have a higher impact on the financial distress of firms operating in both developed and developing markets.<\/jats:p>","DOI":"10.3390\/jrfm12020055","type":"journal-article","created":{"date-parts":[[2019,4,4]],"date-time":"2019-04-04T11:31:57Z","timestamp":1554377517000},"page":"55","update-policy":"https:\/\/doi.org\/10.3390\/mdpi_crossmark_policy","source":"Crossref","is-referenced-by-count":96,"title":["Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?"],"prefix":"10.3390","volume":"12","author":[{"ORCID":"https:\/\/orcid.org\/0000-0002-2295-7263","authenticated-orcid":false,"given":"Sumaira","family":"Ashraf","sequence":"first","affiliation":[{"name":"Management Department, University of \u00c9vora, Largo dos Colegiais, n\u00ba 2, 7000-803 \u00c9vora, Portugal"},{"name":"CEFAGE Research Center, University of \u00c9vora, 7000-812 \u00c9vora, Portugal"}]},{"ORCID":"https:\/\/orcid.org\/0000-0002-8601-5101","authenticated-orcid":false,"given":"Elisabete","family":"G. S. F\u00e9lix","sequence":"additional","affiliation":[{"name":"Management Department, University of \u00c9vora, Largo dos Colegiais, n\u00ba 2, 7000-803 \u00c9vora, Portugal"},{"name":"CEFAGE Research Center, University of \u00c9vora, 7000-812 \u00c9vora, Portugal"}]},{"given":"Z\u00e9lia","family":"Serrasqueiro","sequence":"additional","affiliation":[{"name":"CEFAGE Research Center, University of \u00c9vora, 7000-812 \u00c9vora, Portugal"},{"name":"Department of Management and Economics, University of Beira Interior, Estrada do Sineiro, 6200-209 Covilh\u00e3, Portugal"}]}],"member":"1968","published-online":{"date-parts":[[2019,4,4]]},"reference":[{"key":"ref_1","first-page":"201","article-title":"Predicting corporate failure of Malaysia\u2019s listed companies: Comparing multiple discriminant analysis, logistic regression and the hazard model","volume":"72","author":"Abdullah","year":"2008","journal-title":"International Research Journal of Finance and Economics"},{"key":"ref_2","doi-asserted-by":"crossref","first-page":"285","DOI":"10.1080\/00014788.2007.9663313","article-title":"Twenty-five years of the Taffler z-score model: Does it really have predictive ability?","volume":"37","author":"Agarwal","year":"2007","journal-title":"Accounting and Business Research"},{"key":"ref_3","doi-asserted-by":"crossref","first-page":"1541","DOI":"10.1016\/j.jbankfin.2007.07.014","article-title":"Comparing the performance of market-based and accounting-based bankruptcy prediction models","volume":"32","author":"Agarwal","year":"2008","journal-title":"Journal of Banking and Finance"},{"key":"ref_4","doi-asserted-by":"crossref","first-page":"278","DOI":"10.1016\/j.jcorpfin.2015.12.009","article-title":"An evaluation of Altman\u2019s Z-score using cash flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK","volume":"36","author":"Almamy","year":"2016","journal-title":"Journal of Corporate Finance"},{"key":"ref_5","doi-asserted-by":"crossref","first-page":"589","DOI":"10.1111\/j.1540-6261.1968.tb00843.x","article-title":"Financial ratios, discriminant analysis and the prediction of corporate bankruptcy","volume":"23","author":"Altman","year":"1968","journal-title":"The Journal of Finance"},{"key":"ref_6","first-page":"28","article-title":"Determinants of Financial Distress and Their Impact on Textile Sector of Pakistan Evidence from KSE 100 Index","volume":"6","author":"Aziz","year":"2016","journal-title":"Asian Journal of Educational Research and Technology"},{"key":"ref_7","doi-asserted-by":"crossref","first-page":"432","DOI":"10.1108\/14635770910961425","article-title":"Predicting corporate failure: Some empirical evidence from the UK","volume":"16","author":"Appiah","year":"2009","journal-title":"Benchmarking: An International Journal"},{"key":"ref_8","unstructured":"Avenhuis, Jeroen Oude (2013). 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