Using Quantitative Models in Predicting the Financial Distress of listed Companies on Saudi Stock Exchange Market

Abstract

The purpose of this study is to determine the appropriateness of Altman & McGough Model, and Kida Model in predicting the financially distressed companies listed on the Saudi Stock Exchange Market and in distinguishing between financially distressed and non-financially distressed companies in that market. The study adopts deductive, historical, descriptive statistical, variance analysis, correlation analysis, t-test and Durbin-Watson test methods through application on a sample consist of (12) companies listed in the Saudi Stock Exchange Market half of them were financially distressed and the other half were non-financially distressed. The results of the study showed that the two models were able to predict the financially distressed companies listed in the Saudi Stock Exchange Market. As for the distinguish between financially distressed and non-financially distressed companies, the results of the study showed that Kida model was able to distinguish between financially distressed and financially non-distressed companies more accurately than the Altman & McGough model.