Predicting Corporate Business Failure in the Nigerian Manufacturing Industry

Abstract

This paper employed ratio analysis, and in particular the multi discriminant analysis model in predicting and detecting failing businesses in the manufacturing and other sectors of the Nigerian economy. Data were gathered for a five year period for eleven firms sampled from the manufacturing, oil marketing and the conglomerates sectors of the Nigerian economy. The result revealed that MDA is a veritable tool for assessing the financial health of firms in Nigeria. Accordingly MDA has high predictive power to deduce from a set of ratios the likelihood of failure or otherwise. It is remarkable to note that the MDA model not only predicts business failure but revealed most importantly that the warning signals of impending failure can be revealed one to two years before the actual failure.

Keywords: Multi discriminant analysis; corporate failure; firm financial health; corporate bankruptcy predictor model.