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COMPARATIVE ANALYSIS OF PREDICTIVE MODELS: PARTIAL LEAST SQUARES VS. FINANCIAL RATIO ANALYSIS IN PREDICTING CORPORATE FAILURE IN MALAYSIA
Noraini Fatihah , Department of Mathematics with Economics, Faculty of Science and Natural Resources, Universiti Malaysia Sabah, Kota Kinabalu, Sabah, MalaysiaAbstract
This study conducts a comparative analysis of predictive models, specifically Partial Least Squares (PLS) and Financial Ratio Analysis, to forecast corporate failure in Malaysia. With corporate failure being a critical concern for investors, creditors, and regulatory bodies, accurate predictive models play a pivotal role in mitigating financial risks and safeguarding stakeholders' interests. The study examines the efficacy of PLS, a data-driven approach that identifies latent variables, against Financial Ratio Analysis, a traditional method based on key financial indicators. Using historical financial data from a sample of Malaysian companies, the study evaluates the predictive performance of both models in identifying early signs of corporate distress. Results highlight the strengths and limitations of each approach and provide insights into their practical applicability in the Malaysian context.
Keywords
Predictive models, Partial Least Squares (PLS), Financial Ratio Analysis
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