Abstract

The objective of the paper is to assess the quality of neural networks in predicting distress as against discriminant analysis and its applications in enhancing managers’ decision. Forty four firms listed on the Nigerian Stock Market between 1987 and 2006 are used for the study.  The performance of neural network is then compared with the more familiar discriminant analysis statistical technique, and the performance of both is further with a performance obtainable by mere guesswork. The results show that, while both the neural network and the discriminant analysis techniques performed better than guess work, the neural network out performs the discriminant analysis technique. The outstanding performance of neural network underscores its importance as an invaluable tool in the business decision-making process. The study suggests that neural networks could aid managers in decision making to reverse the present down trend of the Nigerian Stock Market.