Empirical Analysis of the Relationship Between Altman’s Z-Score and Stock Performance Based on Airline Companies Listed in the United States

Abstract

This research looks at any relevance between Altman’s Z-score and the stock market performance of airline companies in the United States (US). Nearly a thousand pieces of data on various aspects of operation and financial status from 81 airline companies in the US are available. Additionally, stock return is used as an indicator of firm stock performance in this paper. In order to satisfy the purpose of determining the relationship between Z-score and stock performance as well as what may be inferred from high stock returns with regard to Z-score, two different regression processes are carried out. The first regression tests the relationship between Z-score and stock return, while the second regression examines whether there is a difference in Z-scores between well-performing airline companies and poorly performing ones using dummy variables. The results reveal that there is a significant positive correlation between the Z-scores of US airline companies and their stock performance; besides, high stock returns potentially imply relatively high Z-scores and vice versa. Therefore, one of the crucial steps that US airline companies must make is to strengthen their balance sheets in order to draw investors to make investments in their businesses.