Development of Business Failure Prediction Model Using SmartPLS on Listed Construction Companies on Bursa Malaysia

摘要

On a global level, failure prediction models are some of the pervasively applied financial models to forecast a company business failure. This study developed a failure prediction model that utilises the PLS-SEM (partial least square structural equation modelling) analysis to forecastbusiness failures of construction companies. The study analysed several macroeconomic indicators and historical financial ratios to ascertain the most suitable ratios and indicators that can be used in forecasting business failure both in healthy and financially distressed companies. WhileSmartPLS is often used to analyse survey results, the researchers felt that the model is suitable to model relationships that are complex, which contain multiple independent and dependent relationships between the latent variables. In this regard, the SmartPLS can be adopted to analyse dataand experiments as shown in the literature review of past studies on the use of PLS. In this paper, the financial statement of 81 Bursa Malaysia listed companies was obtained while several financial ratios were chosen in order to develop the financial model. These companies consisted of bothfinancially distressed and healthy companies. The financial statements of the companies were derived from the Bursa Malaysia library and report of the companies’ annual accounting from 2001 to 2015. This study used the SmartPLS software to utilise the theoretical analysis of the developmentprocess of the model. Then, to determine the predicting accuracy, the companies’ actual business performance was used to validate the model. Consequently, this model can provide an early warning for construction companies as it enables them to measure the status of the firm status andtake legible action to prevent business failure.