Modeling Bankruptcy Prediction for Non-Financial Firms: The Case of Pakistan
Qaisar Abbas and
Abdul Rashid ()
MPRA Paper from University Library of Munich, Germany
This 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.
Keywords: Bankruptcy; Z-Score; Non-Financial Firms; Financial Ratios; Pakistan (search for similar items in EconPapers)
JEL-codes: G33 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:28161
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