ABSTRACT
In this chapter a combined model of failure risk is estimated based on variables both internal and external to the firm, i.e. all the financial ratios that were input into the stepwise regression analysis of Chapter 4 and four 1 of the five principal components and their lags for up to three years 2 from Chapter 5. The same logit functional form that was employed in the previous two chapters will be retained here. Questions to be answered are:
Do the addition of measures of economic adversity and the consequent improvement in model specification for relevance over time and for model completeness also improve our empirical results?
Will the structure of the resulting model have vastly different parameter estimates from the corresponding models in previous chapters based on either the internal or the external variables alone?
Can the results be explained?
