Inability of Gearing-Ratio as Predictor for Early Warning Systems

摘要: Background: Research in business failure and insolvency prediction provides numerous potential variables, which are the position to differentiate between solvent insolvent firms. Nevertheless, not all of them have same discriminatory power, therefore their general applicability as crisis indicators within early warning systems seems questionable. Objectives: The paper aims demonstrate that gearing-ratio is an appropriate predictor for firm failures/bankruptcies. Methods/Approach: first second order derivatives formula were computed mathematically analysed. Based on these results interpretation was given suitability a discriminator models discussed. These theoretical findings then empirically tested using financial figures from statements Austrian companies observation period 2008 2010. Results: assumptions showed suitable systems. This finding confirmed with empirical data. Conclusions: inclusion able provide signals should be ignored future model building attempts.