Evaluation of the relative performance of auditors’ GCOs and statistical models in predicting companies’ failure in Jordan.

Bahaaeddin Alareeni; Joël Branson

Abstract

Empirical evidence on the relative performance of auditors' GCOs versus statistical
models in predicting failure is mixed. In this study, we further investigate this issue by
comparing the predictive ability of auditors' GCOs, Logit model and Altman's model in
Jordan. Our sample consisted of 71 failed and 71 non-failed companies from the
Amman Stock Exchange (ASE). We considered the testing results (overall accuracy
rate, type I and type II error rates) derived from the three approaches. For industrial
companies, we find that the accuracy rate of the Logit model is highest in predicting
failed companies within one year prior to failure and the overall accuracy within all the
three years prior to failure. Altman's model outperforms the other two methodologies
with respect to accuracy rate in predicting failed industrial companies in the second and
third year prior to failure. For service companies, the Logit model is superior in
predicting services companies in all years and for both types of accuracy. Our findings
confirm that statistical models perform much better than auditors' GCOs in predicting
companies' failure. Both Logit models and Altman's model are useful in the Jordanian
context, although overall, the first model gives better results.

Original language	English
Title of host publication	VIII Workshop on Empirical Research in Financial Accounting of the Spanish Journal of Finance and Accounting
Publication status	Published - 25 Mar 2011
Event	Finds and Results from the Swedish Cyprus Expedition: A Gender Perspective at the Medelhavsmuseet - Stockholm, Sweden Duration: 21 Sep 2009 → 25 Sep 2009

Conference

Conference	Finds and Results from the Swedish Cyprus Expedition: A Gender Perspective at the Medelhavsmuseet
Country/Territory	Sweden
City	Stockholm
Period	21/09/09 → 25/09/09

Keywords

failure prediction
GCO
Altman

Cite this

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title = "Evaluation of the relative performance of auditors{\textquoteright} GCOs and statistical models in predicting companies{\textquoteright} failure in Jordan.",

abstract = "Empirical evidence on the relative performance of auditors' GCOs versus statistical models in predicting failure is mixed. In this study, we further investigate this issue by comparing the predictive ability of auditors' GCOs, Logit model and Altman's model in Jordan. Our sample consisted of 71 failed and 71 non-failed companies from the Amman Stock Exchange (ASE). We considered the testing results (overall accuracy rate, type I and type II error rates) derived from the three approaches. For industrial companies, we find that the accuracy rate of the Logit model is highest in predicting failed companies within one year prior to failure and the overall accuracy within all the three years prior to failure. Altman's model outperforms the other two methodologies with respect to accuracy rate in predicting failed industrial companies in the second and third year prior to failure. For service companies, the Logit model is superior in predicting services companies in all years and for both types of accuracy. Our findings confirm that statistical models perform much better than auditors' GCOs in predicting companies' failure. Both Logit models and Altman's model are useful in the Jordanian context, although overall, the first model gives better results.",

keywords = "failure prediction, GCO, Altman",

author = "Bahaaeddin Alareeni and Jo{\"e}l Branson",

year = "2011",

month = mar,

day = "25",

language = "English",

booktitle = "VIII Workshop on Empirical Research in Financial Accounting of the Spanish Journal of Finance and Accounting",

note = "Finds and Results from the Swedish Cyprus Expedition: A Gender Perspective at the Medelhavsmuseet ; Conference date: 21-09-2009 Through 25-09-2009",

}

Alareeni, B & Branson, J 2011, Evaluation of the relative performance of auditors’ GCOs and statistical models in predicting companies’ failure in Jordan. in VIII Workshop on Empirical Research in Financial Accounting of the Spanish Journal of Finance and Accounting. Finds and Results from the Swedish Cyprus Expedition: A Gender Perspective at the Medelhavsmuseet, Stockholm, Sweden, 21/09/09.

Evaluation of the relative performance of auditors’ GCOs and statistical models in predicting companies’ failure in Jordan. / Alareeni, Bahaaeddin; Branson, Joël.

VIII Workshop on Empirical Research in Financial Accounting of the Spanish Journal of Finance and Accounting. 2011.

Research output: Chapter in Book/Report/Conference proceeding › Meeting abstract (Book)

TY - CHAP

T1 - Evaluation of the relative performance of auditors’ GCOs and statistical models in predicting companies’ failure in Jordan.

AU - Alareeni, Bahaaeddin

AU - Branson, Joël

PY - 2011/3/25

Y1 - 2011/3/25

N2 - Empirical evidence on the relative performance of auditors' GCOs versus statistical models in predicting failure is mixed. In this study, we further investigate this issue by comparing the predictive ability of auditors' GCOs, Logit model and Altman's model in Jordan. Our sample consisted of 71 failed and 71 non-failed companies from the Amman Stock Exchange (ASE). We considered the testing results (overall accuracy rate, type I and type II error rates) derived from the three approaches. For industrial companies, we find that the accuracy rate of the Logit model is highest in predicting failed companies within one year prior to failure and the overall accuracy within all the three years prior to failure. Altman's model outperforms the other two methodologies with respect to accuracy rate in predicting failed industrial companies in the second and third year prior to failure. For service companies, the Logit model is superior in predicting services companies in all years and for both types of accuracy. Our findings confirm that statistical models perform much better than auditors' GCOs in predicting companies' failure. Both Logit models and Altman's model are useful in the Jordanian context, although overall, the first model gives better results.

AB - Empirical evidence on the relative performance of auditors' GCOs versus statistical models in predicting failure is mixed. In this study, we further investigate this issue by comparing the predictive ability of auditors' GCOs, Logit model and Altman's model in Jordan. Our sample consisted of 71 failed and 71 non-failed companies from the Amman Stock Exchange (ASE). We considered the testing results (overall accuracy rate, type I and type II error rates) derived from the three approaches. For industrial companies, we find that the accuracy rate of the Logit model is highest in predicting failed companies within one year prior to failure and the overall accuracy within all the three years prior to failure. Altman's model outperforms the other two methodologies with respect to accuracy rate in predicting failed industrial companies in the second and third year prior to failure. For service companies, the Logit model is superior in predicting services companies in all years and for both types of accuracy. Our findings confirm that statistical models perform much better than auditors' GCOs in predicting companies' failure. Both Logit models and Altman's model are useful in the Jordanian context, although overall, the first model gives better results.

KW - failure prediction

KW - GCO

KW - Altman

M3 - Meeting abstract (Book)

BT - VIII Workshop on Empirical Research in Financial Accounting of the Spanish Journal of Finance and Accounting

T2 - Finds and Results from the Swedish Cyprus Expedition: A Gender Perspective at the Medelhavsmuseet

Y2 - 21 September 2009 through 25 September 2009

ER -

Evaluation of the relative performance of auditors’ GCOs and statistical models in predicting companies’ failure in Jordan.

Abstract

Conference

Keywords

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Cite this