Predicting of default of Indian Manufacturing sector: A comparative study of Logit, MDA and PROBIT models

Abstract

Financial risk is the most crucial risk for a corporate and various models develop to predict the financial health of corporates. Various financial variables play a crucial role in differentiation firms between solvent and in-solvent among then total assets is the one which is critical in identifying the financial status of the firm. The present study focus on three basic model for default prediction such as MDA, Logit and PROBIT for default prediction of selected Indian manufacturing sectors (160 Non-default and 91 default firms) for a period form 1 April,2005-31 March,2022. Among these three models Logit perform better with 84% accuracy while PROBIT and MDA shows only 51 % and 28 % accuracy respectively and significant variables are WC/TA, RE/TA, TBD/TA, Total Liability/ Total Assets, Revenue/TA.