Predicting Listed Companies’ Failure in Jordan Using Altman Models: A Case Study

Abstract

The Altman Z-score (1968) model and the Altman Z''-Score model (1993) have been created and applied in the US and other developed countries in a specific era. It is therefore possible that their results are not generalisable to less developed countries in today's context. We tested the generalisability of these two statistical failure prediction models in the Jordanian environment. We used a sample of 71 failed and 71 non-failed companies that were chosen based on the same industry, year of data, and a comparable size of total assets. We tested if the two models predict failures as they did in the US and European countries and if these models are thus relevant for Jordanian firms. We found that the original Altman Z-Score (1968) model still works effectively. The model is generalisable in the Jordanian context for assessing failed industrial companies. For service companies, however, we found that the Altman models could not provide strong indicators to differentiate between failed and non-failed companies.