Risks to auto sector recovery: bankruptcies of auto suppliers in East Asia and the USA

Abstract

Purpose

Early warning models are a widely employed development in modern finance. A good early warning model predicts with a high degree of accuracy the likelihood that a healthy company will either go bankrupt or become financially distressed. Now that B2B companies supply products worldwide, the risk of disruptions to business continuity due to supplier failure is international. This paper aims to focus on early warning models.

Design/methodology/approach

This paper extends the research comparing indicators of financial health to the subject of how industrial globalization affects early warning models. In specific, it considers models developed across two continents: North America and East Asia. The targets of the research are global auto suppliers, companies that deliver parts and equipment to original equipment auto manufacturers.

Findings

The findings are particularly important because of the collapse and resurrection of US original equipment manufacturers (OEMs). The modeling effort tested the ability of a single global model of financial distress to capture the determinants of auto supplier health on the two continents. Individual models for each continent proved to be superior to a single model.

Originality/value

This paper is the first to compare bankruptcy models for auto suppliers between China and the USA.

Citation

Platt, H. and Platt, M. (2013), "Risks to auto sector recovery: bankruptcies of auto suppliers in East Asia and the USA", Journal of Asia Business Studies, Vol. 7 No. 3, pp. 231-243. https://doi.org/10.1108/JABS-02-2013-0010