Forewarning Bankruptcy: An Indigenous Model for Pakistan

Business & Economic Review: Vol. 9, No.4 2017 pp. 259-286

28 Pages Posted: 23 Aug 2018

See all articles by Muhammad Shahzad Ijaz

Muhammad Shahzad Ijaz

Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS)

Ahmed Imran Hunjra

International University of Rabat - Rabat Business School; Ghazi University, Dera Ghazi Khan ; Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS); University of Waikato

Rauf I. Azam

Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS)

Date Written: 2017

Abstract

Predicting financial health of enterprises is crucial for companies and banks (who lend money to them), as well as to all stakeholders. State Bank of Pakistan (SBP) has taken measures to implement Basel Accord framework for minimizing credit risk since its implementation in 2005. In this regard, there was a need for the development of corporate financial distress and bankruptcy prediction model which is specific to Pakistani companies to serve as a reliable tool for the assessment of financial health. In this paper we have proposed a model after a comprehensive analysis for objective prediction of financial health of companies. The proposed model has been tested for a sample of one hundred companies from non-financial sector of PSX listed companies, among which fifty were bankrupt and fifty financially healthy. Twenty-nine financial and accounting variables were used as input to model development procedure. The results suggest that the proposed model is capable of making a correct forecast of financial health of these companies.

Keywords: PSX, Financial Distress, Bankruptcy Prediction, Financial Ratios

JEL Classification: C53, M41, G33

Suggested Citation

Ijaz, Muhammad Shahzad and Hunjra, Ahmed Imran and Azam, Rauf I., Forewarning Bankruptcy: An Indigenous Model for Pakistan (2017). Business & Economic Review: Vol. 9, No.4 2017 pp. 259-286, Available at SSRN: https://ssrn.com/abstract=3229752

Muhammad Shahzad Ijaz

Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS) ( email )

Rawalpindi, 44000
Pakistan

Ahmed Imran Hunjra (Contact Author)

International University of Rabat - Rabat Business School ( email )

Technopolis Rabat-Shore Rocade Rabat-Salé
Rabat, 11103
Morocco

Ghazi University, Dera Ghazi Khan ( email )

Airport road D G Khan
Dera Ghazi Khan
Pakistan

Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS) ( email )

Muree Road Rawalpindi
Shamsabad, Punjab 44000
Pakistan
00923457162527 (Phone)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Rauf I. Azam

Pir Mehr Ali Shah Arid Agriculture University Rawalpindi (PMAS) ( email )

Muree Road Rawalpindi
Shamsabad, Punjab 44000
Pakistan

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