Using Altman and Sherrod Z- Score Models to Detect Financial Failure for the Banks Listed on the Iraqi Stock Exchange (ISE) Between 2009 – 2013

Abstract

Purpose: The Purpose of the study was to examine the validity of the Altman Z- Score and Sherrod Z- Score models in financial failure prediction. To achieve the study's goal, references from various authors who have reviewed this topic were used. Theoretical framework: The study highlights the importance of analyzing and delving into the various notions of financial failure and distress. When it comes to potential effects on the wealth of creditors, stockholders, and society as a whole, academics and researchers consider a company's distress and bankruptcy to be the most important issue to be studied. In order to maintain the goal of company survival and continuity before the disaster happens, many academics started looking for a method to identify and forecast distress and failure. Design/methodology/approach: Altman Z-score and Sherrod Z- score employed a multi-discriminant model to predict the financial position of ten ISE banks between 2009 - 2013. Z- Score models from Altman and Sherrod were used to determine whether the banks listed on the ISE are exposed to failing financially. Ten banks out of the forty - six banks listed on the ISE were selected. The study only used secondary data obtained from the chosen banks' financial statements in ISE. Findings: Based on Altman's Z- score model, the study examines that certain banks are particularly exposed to failure. In contrast, the Sherrod Z- Score model indicates that the chosen banks have some issues, but they are minor, and the risk of bankruptcy is low. Research, scientific and social implications: By using a failure prediction model, it is possible to determine the likelihood that banks will experience financial failure in the future. Investors could use this information to guide their decision-making going forward. Originality/value: The value and importance of research related to the study of financial failure prediction models in Iraqi commercial banks. The research also seeks to explain financial failure models and the extent to which investors benefit from these models.