Altman’s Bankruptcy Prediction Model: Test on a Wide Out of Business Private Companies Sample

Abstract

This study tests the accuracy of the Altman bankruptcy prediction model for a wide private companies’ sample that went bankrupt in the years 1985 to 2013. Financial ratios used in the model calculations, Z’-Score (Altman’s Z for private companies) also provide useful information on the solvency and probability of bankruptcy for privately held companies from the sample. The findings do not support the assertion that the Z’-Score can be generalized to countries and sectors different from industrial sector. The general number of bankruptcies may be an antecedent variable to certain economic and/or financial crises, but the results indicate a correct identification of bankruptcy risk only to two thirds of the sample of companies.