Data Envelopment Analysis (DEA) is employed as a tool to evaluate the efficiency score of Tehran Stock Exchange. For predicting financial distress, it is designed and tested a model base on efficiency score. Its accuracy was verified by employing another model designed by financial ratios and variables based on Multivariate Discriminant Analysis (MDA). Ultimately, to investigate the effectiveness of firm’s efficiency score on financial distress prediction, its score combined with financial ratios is entered in an MDA model. The results show that all the three proposed models, in this paper, have better ability of predicting financial distress in Tehran Stock Exchange for two years prior to its occurrence. It implies that, DEA efficiency score is an effective predictor variable.

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