Factors Determining Z-score and Corporate Failure in Malaysian Companies

International Journal of Economics and Business Research, 21(3), 370-386. (online) http://dx.doi.org/10.1504/IJEBR.2021.114381, 2021

17 Pages Posted: 23 Mar 2022

See all articles by Nurul Izzaty Hasanah Azhar

Nurul Izzaty Hasanah Azhar

Faculty of Administrative Science and Policy Studies Universiti Teknologi Mara, Shah Alam, Malaysia

Norziana Lokman

Universiti Teknologi MARA (UiTM)

Md. Mahmudul Alam

Universiti Utara Malaysia - School of Economics, Finance and Banking

Jamaliah Said

Universiti Teknologi MARA (UiTM)

Date Written: 2021

Abstract

Predicting the sustainability of a business is crucial to prevent financial losses among shareholders and investors. This study attempts to evaluate the Altman model for predicting corporate failure in distressed and non-distressed Malaysian companies based on the data of financially troubled companies which are classified as Practice Note 17 (PN17) and matching similar non-PN17 companies during the period 2013 to 2017. This study utilizes panel ordinal and panel random effects regressions. Findings show that the liquidity, profitability, leverage, solvency, and efficiency ratios are negatively significantly associated with corporate failure and bankruptcy. The leverage ratio is determined to be the strongest indicator of bankruptcy, followed by profitability, liquidity, solvency, and efficiency ratios. The findings will help companies’ management bodies implement suitable strategies to prevent further financial leakage, thereby ensuring continuous and sustainable return on investment and profits for investors and shareholders.

Keywords: Corporate failure, financial distress, PN17 companies, ratio analysis, Z-score

Suggested Citation

Izzaty Hasanah Azhar, Nurul and Lokman, Norziana and Alam, Md. Mahmudul and Said, Jamaliah, Factors Determining Z-score and Corporate Failure in Malaysian Companies (2021). International Journal of Economics and Business Research, 21(3), 370-386. (online) http://dx.doi.org/10.1504/IJEBR.2021.114381, 2021 , Available at SSRN: https://ssrn.com/abstract=4014715

Nurul Izzaty Hasanah Azhar

Faculty of Administrative Science and Policy Studies Universiti Teknologi Mara, Shah Alam, Malaysia ( email )

Norziana Lokman

Universiti Teknologi MARA (UiTM) ( email )

40450 Shah Alam
Selangor
Malaysia

Md. Mahmudul Alam (Contact Author)

Universiti Utara Malaysia - School of Economics, Finance and Banking ( email )

Jamaliah Said

Universiti Teknologi MARA (UiTM) ( email )

40450 Shah Alam
Johor
Dungun, Selangor 23000
Malaysia

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