Development of a Method to Assess the Relevant Variables and the Probability of Financial Distress

Abstract

This study develops a method to select variables, and to specify the relative importance of those variables, as input for failure models. In addition, our method provides estimates of the failure probabilities of organisations at a point in time. The results of tests of our method on Australian credit unions are intuitively appealing, given the recent experiences of the Australian financial market generally, and the credit union industry in particular.