Modeling Bankruptcy Prediction for Non-Financial Firms: The Case of Pakistan
AbstractThis paper aims to identify the financial ratios that are most significant in bankruptcy prediction for the non-financial sector of Pakistan based on a sample of companies which became bankrupt over the 1996-2006 period. Twenty four financial ratios covering four important financial attributes namely profitability, liquidity, leverage, and turnover ratios) were examined for a five-year period prior bankruptcy. The discriminant analysis produced a parsimonious model of three variables viz. sales to total assets, EBIT to current liabilities, and cash flow ratio. Our estimates provide evidence that the firms having Z value below zero fall into the “bankrupt” whereas the firms with Z value above zero fall into the “non-bankrupt” category. The model achieved 76.9% prediction accuracy when it is applied to forecast bankruptcies on the underlying sample.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28161.
Date of creation: 01 Jan 2011
Date of revision:
Bankruptcy; Z-Score; Non-Financial Firms; Financial Ratios; Pakistan;
Find related papers by JEL classification:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-FOR-2011-01-30 (Forecasting)
- NEP-RMG-2011-01-30 (Risk Management)
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