Should we trust the Z-score? Evidence from the European Banking Industry

Laura Chiaramonte, Ettore Croci and Federica Poli

Global Finance Journal, 2015, vol. 28, issue C, 111-131

Abstract: We investigate the accuracy of the Z-score, a widely used proxy of bank soundness, on a sample of European banks from 12 countries over the period 2001–2011. Specifically, we run a horse race analysis between the Z-score and the CAMELS related covariates. Using probit and complementary log–log models, we find that the Z-score's ability to identify distress events, both in the whole period and during the crisis years (2008–2011), is at least as good as the CAMELS variables, but with the advantage of being less data demanding. Finally, the Z-score proves to be more effective when bank business models may be more sophisticated as it is the case for large and commercial banks.

Keywords: Bank distress; Z-score; CAMELS; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028315000083
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:28:y:2015:i:c:p:111-131

DOI: 10.1016/j.gfj.2015.02.002

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().