Similarities and Differences Between Keige [1990] Study and Altman ‘S [1977] Usage of Mult-Discriminant Analysis Model in Business Failure

SIMILARITIES AND DIFFERENCES BETWEEN KEIGE [1990] STUDY AND ALTMAN ‘S [1977] USAGE OF MULT-DISCRIMINANT ANALYSIS MODEL IN BUSINESS FAILURE.

DECLARATION

I wish to declare that this is my original work which is prepared from my personal research .

Peter Keige's model

Peter Keige in pursuit to come up with a model of predicting business failure conducted a study of 20 companies and came up with 7 ratios. He developed a model from his research study in the company at the Nairobi stock exchange and using the analysis developed a discriminate function to predict failure of companies before the failure actually occurs.

Altman Business failure prediction model

This model is based on multiple discriminate analyses (MDA). MDA is a way of classifying an observation into one of the several groupings or makes prediction where the dependant variable appears in quantitative form and computes a score, which discriminates failing from non-failing firms.

Altman took a sample of 66 corporate companies from the USA, 33 of which being firms that filed for bankruptcy between 1946 whose asset range was $0. 7 Million to $25.9 million. The firms were carefully matched with equal sized firms that were not bankrupt. He used test data for one reporting period prior to bankruptcy. Using the income statements and balance sheets of the firms, he calculated 22 ratios. These were in five broad categories: Profitability, Leverage, Solvency, Liquidity, and Activity.

TABLE OF CONTENTS

CHAPTER ONE 1

1.0 PETER KEIGE'S MODEL 1

1.2 Data analysis 1

1.3 Interpretation of independent variables Keige's model 2

1.4 Model Validation 3

1.5 Limitations of the model. 3

CHAPTER TWO 4

2.0 Altman Business failure prediction model 4

2.1 Model validation 5

2.2 Limitations 5

CHAPTER THREE 6

3.0 COMPARISON OF THE TWO MODELS. 6

3.1 Similarities 6

3.2 Differences. 6

REFERENCES 10

CHAPTER ONE

1.0 PETER KEIGE'S MODEL

Peter Keige in pursuit to come up with a model of predicting...