Modelling PN4 classification among Malaysian listed companies Malcolm Smith Leicester Business School, UK Syahrul Ahmar Ahmad and Ahmad Shameer Mohamed Thaheer Universiti Teknologi Mara, Shah Alam, Malaysia Keywords:zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA corporate failure, Kuala Lumpur Stock Exchange, Practice Note No. 4, Malaysia Prior studies have demonstrated that simple linear discriminant models can be highly successful in identifying financially distressed companies, and therefore useful in predicting corporate failures. Such models have been shown to be both industry and country specific even though their variable selection has been narrow. These models have remained incredibly robust over time despite variations in the definition of the 'distressed' state employed for modelling purposes. This paper extends such analysis to the main and second boards of the Kuala Lumpur Stock Exchange (KLSE) in Malaysia, with particular reference to their designation of PN4 companies (those classified as 'distressed' in accordance with Practice Note No. 4 introduced in February 2001). The findings of the study show that a single discriminant model has high classificatory power for both boards of the KLSE, and that the optimum model comprises financial ratio variables common to other published models. Previous findings are therefore shown to be substantially generalisable to a new environment and to a different definition of distress. Copyright© 2004 AsianReview of Accounting. Volume 12, Number 2: 57-73 Extant literature has highlighted the usefulness of failure prediction models to financial institutions, creditors, managers, auditors, investors, academics, regulatory agencies and other groups of financial statement users (Altman 1968; Dugan and Zavgren 1988; Eidleman 1995). Accurate and reliable failure prediction models provide an early warning system that enables these groups of financial statement users to make more effective decisions, and to evade or mitigate the costly effects of bankruptcy. In Malaysia, the classification of a specified group of 'distressed' companies with a PN4 designation, by the Kuala Lumpur Stock Exchange (KLSE), suggests that there is a need for a sound prediction model to identify those companies likely to befall such a designation in the near future. Practice Note 57