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Understanding the Connection of Performance and Z-Scores for Manufacturing Firms in South Korea

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  • Foo See Liang
  • Shaak Pathak

Abstract

South Korea is a key leading economy in the Asia Pacific region. This study examines the relationship between the financial health, as measured by the Altman Z-Score, and corporate performance, as measured by the Return on Equity (ROE), of listed manufacturing companies in this market. A linear regression has been conducted between these variables to determine the magnitude and direction of their relationships. The trends of Z-Scores over a five-year period have also been analysed. The analysis covers the period from 2013 to 2017 (inclusive) and yields a statistically positive correlation between ROE and the Z-Score for the market. South Korea registered moderate mean and median Z-Scores. These findings further support the strong economic position of this market as an Asian giant.

Suggested Citation

  • Foo See Liang & Shaak Pathak, 2019. "Understanding the Connection of Performance and Z-Scores for Manufacturing Firms in South Korea," Journal of Asian Development, Macrothink Institute, vol. 5(3), pages 37-46, November.
    • Handle: RePEc:mth:jad888:v:5:y:2019:i:3:p:37-46
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    References listed on IDEAS

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    1. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    2. Ilhan Meric & Christine Lentz & Sherry F. Li & Gulser Meric, 2014. "A Comparison Of The Financial Characteristics Of Hong Kong And Singapore Manufacturing Firms," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(3), pages 31-37.
    3. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    4. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    5. Vineet Agarwal & Richard Taffler, 2007. "Twenty‐five years of the Taffler z‐score model: Does it really have predictive ability?," Accounting and Business Research, Taylor & Francis Journals, vol. 37(4), pages 285-300.
    6. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
    7. Muriel Perez, 2006. "Artificial Neural Networks And Bankruptcy Forecasting : A State Of The Art," Post-Print halshs-00522129, HAL.
    8. Frydman, Halina & Altman, Edward I & Kao, Duen-Li, 1985. "Introducing Recursive Partitioning for Financial Classification: The Case of Financial Distress," Journal of Finance, American Finance Association, vol. 40(1), pages 269-291, March.
    9. Mathius Tandiontong, 2017. "The Influence of Financial Distress Using Altman Z-Score, The Beta of Stocks and Inflation To The Stock Return," GATR Journals jfbr126, Global Academy of Training and Research (GATR) Enterprise.
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    Cited by:

    1. Tarsisius Renald Suganda & Jungmu Kim, 2023. "An Empirical Study on the Relationship between Corporate Social Responsibility and Default Risk: Evidence in Korea," Sustainability, MDPI, vol. 15(4), pages 1-20, February.

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