Altman’s Z-Score Models of Predicting Corporate Distress: Evidence from the Emerging Sri Lankan Stock Market

Journal of the Academy of Finance, vol. 1, pp. 119-125, 2003

11 Pages Posted: 13 May 2009 Last revised: 16 Feb 2010

Lalith P. Samarakoon

University of St. Thomas

Tanweer Hasan

Roosevelt University

Date Written: 2003

Abstract

This study investigates the ability of three versions of Altman’s Z-Score model (Z, Z’, and Z”) of distress prediction developed in the U.S. to predict the corporate distress in the emerging market of Sri Lanka. The results show that these models have a remarkable degree of accuracy in predicting distress using financial ratios computed from financial statements in the year prior to distress. The overall success rate of 81% is observed using the Z”-Score. The out-of-sample evidence provided in this paper means that the Z-Score models seem to have a very good potential in evaluating the risk of corporate distress in smaller emerging markets as well.

Keywords: Altman Z, Distress prediction, Ratios, Emerging markets, Sri Lanka

JEL Classification: G15, G32, G33

Suggested Citation

Samarakoon, Lalith P. and Hasan, Tanweer, Altman’s Z-Score Models of Predicting Corporate Distress: Evidence from the Emerging Sri Lankan Stock Market (2003). Journal of the Academy of Finance, vol. 1, pp. 119-125, 2003. Available at SSRN: https://ssrn.com/abstract=1395229

Lalith P. Samarakoon (Contact Author)

University of St. Thomas ( email )

2115 Summit Ave
St. Paul, MN 55105
United States

HOME PAGE: http://www.stthomas.edu/business/faculty/directory/Samarakoon_Lalith.html

Tanweer Hasan

Roosevelt University ( email )

Chicago, IL 60605
United States

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