Explaining Financial Variables Affecting Financial Distress Forecast: Application the ANN Method

Predicting corporate financial distress is one of the main issues facing managers, which can significantly contribute to companies' success and survival because corporate managers can be informed of financial distress and bankruptcy by providing warning and timely signals. Therefore, it is possible to avoid wasting resources and damages due to bankruptcy through proper management. This study's main purpose was to select the financial variables affecting the prediction of financial distress of companies listed on the Tehran Stock Exchange and then to predict financial distress using the ANN method. Therefore, first, 106 companies were selected by the simple random sampling method. Their financial data were extracted during 2007-2020. The relationship between variables was examined through the Pearson correlation test. Out of 34 financial ratios, 24 ratios with a significant relationship were selected. Finally, the ANN method was used to predict corporate financial distress, in which the financial distressfulness or non-distressfulness of 103 companies was correctly predicted. Comparing the prediction made by the ANN method with the actual values of the dependent variable in 2020, it was found that this method correctly predicted the corporate financial distress with a confidence level of 97%.