Can Z-Score Model Predict Listed Companies’ Failures in Italy? An Empirical Test

摘要

The Altman Z-score model for predicting bankruptcy of businesses was constructed and fine-tuned in the USA in 1968 and updated in 1999. It is therefore possible that its results cannot be extended to non-Anglo-Saxon countries in today’s context. This paper ascertains if the Z-score can correctly predict the failure of industrial listed companies in Italy. First, we have analyzed the theoretical and practical characteristics of the original Z-score model and we highlight some of its potential shortcomings. Second, we have examined a sample of 102 industrial companies, quoted on the Italian Stock Exchange in the period 1995-2013 – 51 companies had had their shares permanently suspended or delisted because of a default, whereas the remaining 51 companies, which have been selected based on same core business and year of data collection, did not go bankruptcy or had their shares permanently suspended. We investigated whether the Z-score model could have predicted the default of the firms in the sample for up to three years earlier, with a degree of accuracy and reliability comparable to the one obtained by Altman (and by many other authors) in the tests performed nowadays in the U.S. and Anglo-Saxon contexts. We found that the Z-score works effectively and performs well in predicting failures of Italian firms, although with a slightly lower degree of reliability when applied to Anglo-Saxon companies. Therefore, we conclude that the Z-score can be applied to the Italian context, provided that some critical points illustrated in this study are taken into account.