The Altman Z Score Does Not Predict Bankruptcy
8 Pages Posted: 27 Apr 2020 Last revised: 5 May 2020
Date Written: May 4, 2020
The Altman Z Score (AZS) does not predict bankruptcy. The false positive rate of the AZS is 98%-99%. The AZS fails as a predictive model because it does not incorporate market evidence bearing on bankruptcy probability, specifically, returns, debt to an approximation of market value of assets, and stock price. In a probit model, AZS is statistically insignificant in the presence of these market variables.
Keywords: Altman Z, bankruptcy prediction, market evidence
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