The determinants of credit risk in an emerging market

• Main Author: Ng, Yen Theng
• Format: Thesis
• Language: English; English
• Published: 2014
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/5191/1/s812379.pdf; https://etd.uum.edu.my/5191/2/s812379_abstract.pdf; https://etd.uum.edu.my/5191/

The aim of this study is to examine the determinants of credit risk management in an emerging market by using Malaysian listed companies. The sample of the study is selected using paired sample method. In order to adjust for earning management portions, the discretionary accrual model is used to calculate the abnormal accruals of firms. Furthermore, logistic regression is applied to determine the accuracy of unadjusted and adjusted model in predicting financial distress. Based on the empirical result, the liquidity ratio is proof to be significant at 5percent significance level in determining financial distress before and after earnings management is adjusted. Meanwhile, the productivity ratio is only showing its significance before the earnings management is adjusted and the profitability ratio is significant after the earnings management is adjusted. On the other hand, this study indicates that both unadjusted and adjusted models are having the same level of Type I error (23.3%). Out of the total 30 distressed observations, 23 are classified as distressed observations resulting in 76.6 percent of success classification and 7 are classified as non-distressed observations resulting in a 23.3 percent failure. However, for the Type II error, the non-adjusted model is performing better with a 16.7 percent failure compared to a 26.7 percent failure of adjusted model. As a result, by considering the cost for both Type I and Type II errors, the unadjusted model is better and more appropriate in predicting financial distress firms in Malaysian market compared to the adjusted model. This indicates that the unadjusted model helps in improving credit management among market participants in Malaysia