Bankruptcy Prediction Models: Does Altman's 1968 Model Work Among Spanish Firms?
Fermín Lizarraga Dallo
Altman's 1968 discriminant model has been presented as a useful prediction tool for the two years previous to firm failure. However, this utility must be tested before its aplication to geografical and accounting information conditions different from the original ones. The main purpose of this study is to analyze the behaviour of the model in a sample of 120 medium-sized industrial Spanish firms, using "suspensión de pagos" as a definition of failure. After a reestimation process we conclude about the non-convenience of a direct aplication of the model, finding a substantial improvement after reducing the number of variables from five to two, representative of asset profitability (once incorporated the effect of interest charges on net income) and financial leverage.
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