The Altman Z Score Does Not Predict Bankruptcy

AIRA Journal, 33(3), 2020.

4 Pages Posted: 27 Apr 2020 Last revised: 21 Oct 2020

Date Written: October 20, 2020

Abstract

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

Suggested Citation

Heaton, J.B., The Altman Z Score Does Not Predict Bankruptcy (October 20, 2020). AIRA Journal, 33(3), 2020., Available at SSRN: https://ssrn.com/abstract=3570149 or http://dx.doi.org/10.2139/ssrn.3570149

J.B. Heaton (Contact Author)

One Hat Research LLC ( email )

1165 North Clark Street
7th Floor
Chicago, IL 60610
United States

HOME PAGE: http://https://www.onehatr.com/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
260
Abstract Views
980
rank
131,871
PlumX Metrics