Distressed Firm and Bankruptcy Prediction in an International Context: A Review and Empirical Analysis of Altman’s Z-Score Model

ArXiv ID: ssrn-2536340 “View on arXiv”

Authors: Unknown

Abstract

The purpose of this paper is firstly to review the literature on the efficacy and importance of the Altman Z-Score bankruptcy prediction model globally and its

Keywords: Altman Z-Score, Bankruptcy Prediction, Credit Risk Modeling, Financial Ratios, Distress Analysis, Equity/Fixed Income

Complexity vs Empirical Score

• Math Complexity: 4.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders
• Why: The paper applies a well-established linear model (Z-Score) with basic statistical metrics, showing low math complexity, but uses a large international dataset, cross-country validation, and AUC analysis, indicating high empirical rigor.

  flowchart TD
    A["Research Goal<br>Evaluate global efficacy of Altman Z-Score<br>in distressed firm & bankruptcy prediction"] --> B["Methodology & Data<br>Literature review & empirical analysis<br>of international financial data"]
    B --> C["Input Variables<br>Financial Ratios:<br>Working Capital/Total Assets<br>Retained Earnings/Total Assets<br>EBIT/Total Assets<br>Market Value/Book Value<br>Sales/Total Assets"]
    C --> D["Computational Process<br>Calculate Altman Z-Score:<br>Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E<br>Apply Thresholds: Z < 1.8 (Distress)"]
    D --> E["Key Findings<br>Model demonstrates moderate predictive power<br>Contextual limitations in global markets<br>Recommendations for sector/region adjustments"]