%0 Journal Article
%T Structural and Evolutionary Patterns of Companies in a Financial Distress Situation
%A M. I. Gonz¨˘lez-Bravo
%A Arjola Mecaj
%J Advances in Decision Sciences
%D 2011
%I Hindawi Publishing Corporation
%R 10.1155/2011/928716
%X The present paper studies the evolution of a set of USA firms during the years 1993¨C2002. The firms that faced a difficult economic and financial situation in 1993 were considered to be in a distress situation. The aim of this study is to explore if the evolution of this situation depends on the initial features of the distress or if it concerns certain firms' characteristics. If the evolution is independent from the above, the management decisions become crucial in critical times. For the analysis we used a Multidimensional Scaling methodology where the firms are represented in a consensus map according to symptom variables, reaction variables, and recovering variables. 1. Introduction The research on financial distress has been closely tied to the determination of failure prediction models. Failure is considered to be the result of an evolutionary process, where the underlying idea is the possibility that the crisis can indeed be anticipated [1]. Pioneer prediction models such as the one proposed by Altman [2] built the basics of the research based on prediction. Those researches were mainly centered on minimizing classification errors and maximizing goodness of fit measures using certain variables throughout a wide period of time. In this context, prediction models were evaluated based on their percentage of success in the classification of the control sample companies [3]. The existence of an error in the classification of those companies, which did not fail even though were being described as failed, was considered as a failure of the proposed model. Nevertheless, these results leave an open door to consider the possibility that the companies can indeed survive a difficult situation or even subsist in a permanent crisis situation. This approach would allow considering the possibility that the failure process can sometimes not be an evolutionary-degenerative process, but it can revert so that the companies are able to subsist, even though still indicating certain situations that can determine their survival. In this sense, prediction models not only provide some essential information in order to take actions against the given default probability, but also warn about a future outcome which, in many cases, may not even take place. This ˇ°passiveˇ± use of the models has been highlighted by Altman and Hotchkiss [4] who affirm that stakeholders should have a more active participation instead of being simple onlookers of a given ˇ°probability of defaultˇ±. Basically, this default probability should be considered as vital information by the managers not only
%U http://www.hindawi.com/journals/ads/2011/928716/