Predicting Bankruptcy and Financial Fraud of Both Listed and Unlisted Commercial Banks in Ghana Using 3 Z-Score Models

Thomas Hezkeal Khela Nan ,Patrick Bimpong ,Edward Danso ,Angela Tabiri ,Richmond Kwesi Ansah ,Ishmael Arhin

doi:10.7176/ejbm/12-12-05

Abstract

The purpose of this study was to assess the possibilities of bankruptcy and financial statement fraud in Ghana’s banking sector. An investigation of the financial statements of the banks for the period 2015 to 2018 was made with the use of Altman’s (2000), Taffler’s (1983), and Beneish (1999) models. The Altman (2000) and Taffler (1983) models are predictors of insolvency or bankruptcy. To unveil the possibilities of financial statement fraud, this study used the Beneish [1999], model. The examination of the bank's annual financial reports with the Beneish model revealed the banks were engaged in earnings manipulation. The Altman [2000] and Taffler [1983] models, on the other hand, brought to light the financial soundness of the banks with an average of 14 (74%) and 18 (95%) of the 19 selected banks correctly classified into the safe zone with an impressive Z-Score performance according to Altman and Taffler’s models respectively. The study, therefore recommends that, if the Beneish model is applied well together with the failure prediction models by researchers, it can provide a reliable finding for policymaking. Also, auditors, investors, management, and stockholders when making good use of the Beneish model, it can provide potential ‘red flags’ for further investigation to be carried out for better audit assignment Keywords: Altman [2000] Z-score model, Beneish [1999] M-score model, bankruptcy, commercial banks, fraud, financial statement, Ghana, Taffler [1983] Z-score model . DOI: 10.7176/EJBM/12-12-05 Publication date: April 30 th 2020

Highlights

Financial bankruptcy prediction has been a central topic in both practical and academic corporate finance
Empirical Results 4.1 Descriptive Statistics The descriptive statistics of financial ratios computed using the four-year annual financial statements for all the models are summarized in table1
The descriptive statistics of 19 commercial banks that were computed by means of Altman Z-Score, Taffler Z-score, and Beneish M-score models are displayed in tables 2, 3 and 4 respectively

Summary

Introduction

Financial bankruptcy prediction has been a central topic in both practical and academic corporate finance. There are several names attributed to the financial ill-health of an institution, specific meanings have been given to described ill-health of an institution. Names that have been notably used to describe the financial ill-health of an institution include corporate/business failure, insolvency, and bankruptcy. Adeyemi [2011] defined bankruptcy situations to mean having financial operational and managerial difficulties. Vuran, [2009] defined business failure as the situation when the institution cannot pay lenders, shareholders, and suppliers, etc., or the institution is bankrupt according to the law. Baharin and Sentosa, [2013] defined financially bankrupt firms or banks as institutions that are experiencing financial difficulties to maintain their normal operations

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