Forecasting Financial Distressed Companies in Taiwan by Using the Concept of the EBO Model

10.6704/JMSSD.2006.3.1.4

Kun-Huang Huarng；Tiffany H.-K. Yu；Chun-Ming Lee

Classification and Regression Tree CART ； full-delivery ； Edwards-Bell-Ohlson EBO model ； decision trees ； firm intrinsic values

管理科學與統計決策

3卷1期（2006 / 03 / 01）

4 - 15

英文

Financial distress has been an important topic in corporate governance. This study applies Edwards-Bell-Ohlson (EBO) model to forecast financial distress. Using the critical variables in the EBO model, we also apply Classification and Regression Tree (CART) to forecast. The decision tree is intended to provide a better idea of what impacts the financial distress. There are 36 listed companies in Taiwan Stock Exchange Corporation as the data sample. These data are further divided for in-sample estimation and out-of-sample forecasting. The in-sample data are used to establish a decision tree and to test the EBO model. The out-of-sample forecasting data are used to evaluate forecasting performance. The empirical results are compared to demonstrate the advantages of both the EBO model and the decision tree.

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