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JOURNAL OF ACCOUNTING AND FINANCE
Prediction of Corporate Bankruptcy from 2008 Through 2011
Author(s): June Li
Citation: June Li, (2012) "Prediction of Corporate Bankruptcy from 2008 Through 2011," Vol. 12, Iss. 1, pp. 31 - 41
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This study examines the prediction of corporate failures in the U.S. during 2008-2011. Three prediction
models are examined: Altman’s original Z-Score model, a re-estimated Z-Score model and a re-estimated
model with an added variable. Through a series of discriminate analyses, the model with only one ratio
“Market value of equity/Total liabilities” appears to have the highest bankruptcy predicting power. This
lends support to the assertion of the superiority of market-based models in bankruptcy prediction to
accounting-based models. Contrary to a popular criticism of the Z-Score model, total asset variability
does not appear to be a significant factor for bankruptcy prediction. In addition, all models tend to have
high type II error of mis-predicting a solvent firm as bankrupt.
