A Proposed Model for Prediction of Industrial Sickness

Abstract

The objective of this study is to examine the performance of default prediction model: the Z-score model using discriminant analysis, and to propose a new prediction model on a data set of 30 defaulted and 30 solvent companies. Financial ratios obtained from corporate balance sheets are used as independent variables while solvent/defaulted company (ratings assigned) is the dependent variable. The predictive ability of the proposed Z score model is higher when compared to both the Altman original Z-score model and the Altman model for emerging markets. The research findings establish the superiority of proposed model over default discriminant analysis and demonstrate the significance of accounting ratios in predicting default.