Predicting Risk of Financial Distress using Grover’s Model: A Case study in Malaysia Companies

Abstract

A bankruptcy prediction is one of the main critical problems for financial decision-makers. In this study, we aim to measure the risk of 5 Malaysian companies' financial failures through Grover's model and further investigate the accuracy of this model in predicting bankruptcy risk. Purposive sampling was used in this study, with five firms being chosen to be sampled in predicting bankruptcy risk. Meanwhile, the data from 292 US companies is used to test the accuracy of Grover's model in predicting bankruptcy risk. The predicted results are classified into three different zones to indicate different consequences. The predicted results were then compared to the actual data. The result shows that 4 out of 5 companies are predicted correctly with approximately 80% accuracy. The results are corroborated by 292 companies maintaining a 75% accuracy. Conclusively, the computed outcome from the case study suggests that Grover's model effectively predicts bankruptcy risk with an accuracy ranging between 75% and 80%.