Predicting corporate failure in the UK: A multidimensional scaling approach

Abstract

Scaling techniques are proposed as an alternative tool for the analysis and prediction of corporate failure. This approach has the advantage of reproducing the main features of the data in the form of statistical maps that lend themselves to intuitive interpretation. The maps are further analysed by means of standard multivariate statistical tools. The methodology is demonstrated using a recent sample of UK industrial companies. A future-dated holdout sample is also employed to illustrate how the Multidimensional Scaling technique can aid practitioners when assessing the financial health of a company.

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