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Applying the Z-Score Model to Predict Corporate Financial Distress: An Empirical Research on the Listed Firms in Vietnam Stock Market

Author

Listed:
  • Pham Tien Manh

    (Banking Academy of Vietnam, Hanoi, Vietnam)

  • Ha Vy Nguyen

    (Banking Academy of Vietnam, Hanoi, Vietnam)

Abstract

Assessing the risk of financial distress is an important component of effective management because it helps companies make right financial decisions, avoid potential risks and improve business operations. This study provides more empirical evidence on the role of the Z-Score model in predicting financial distress of companies in emerging markets like Vietnam. This research paper uses data from 30 companies that delisted on UPCOM due to financial distress and 30 companies with Z-score greater than 4.35 on Ho Chi Minh City Stock Exchange (HoSE) for 5 years from 2018 to 2022, corresponding to 300 observations. The selected companies have enough audited financial statement data during the research period which are collected from websites such as cafef.vn, vietstock.vn, and websites with data on companies' financial statements. The financial factors are taken from the balance sheet and income statement by the authors to calculate the Z-Score. The authors use the Independent-samples T-test with data collected delisted companies due to financial distress and stably listed firms on the Vietnam Stock Market to test whether there is a difference in Z-score and independent variables in the Z-score model between these two groups of companies. The research results show that, there is a significant difference in the Z-score and the factors in the Z-Score model between the group of listed companies and the group of delisted companies, and between companies with low level of financial distress and those with high level of financial distress. From the findings obtained, the authors have made suggestions and recommendations for relevant parties such as the State Securities Commission of Vietnam, users of financial statements, and companies in order to contribute to preventing and limiting the risk of corporate financial distress in the most effective way.

Suggested Citation

  • Pham Tien Manh & Ha Vy Nguyen, 2024. "Applying the Z-Score Model to Predict Corporate Financial Distress: An Empirical Research on the Listed Firms in Vietnam Stock Market," Oblik i finansi, Institute of Accounting and Finance, issue 1, pages 38-48, March.
    • Handle: RePEc:iaf:journl:y:2024:i:1:p:38-48
    DOI: 10.33146/2307-9878-2024-1(103)-38-48
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    References listed on IDEAS

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    3. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure - Reply," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 4, pages 123-127.
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    5. Alexeev, Michael & Kim, Sunghwan, 2008. "The Korean financial crisis and the soft budget constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 178-193, October.
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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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