An Empirical Investigation on Bankruptcy Model

Abstract

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Bankruptcy is a state of insolvency, where a person or company is not able to repay the amount owed to the creditor. Financial health prediction is a very crucial task for the stakeholder as well as the nation’s economy. Corporate economic failure is an ongoing area at present for comparison between five bankruptcy models (Springate, Ohlson, Zmjjewski, Grover, and Altman). The main objective is to identify the best predictive model with the help of a comparative analysis between the models. Descriptive research design is used, which is based on secondary data obtained from publication sources, i.e. the annual report of ten years. The Ohlson model is highly accurate for predicting the bankruptcy category, but gives quite late predictions compared to the Springate and Zmijewski model. This study will have vital inferences for the manager to take a financial decision and the stockholder to choose a model. This paper sheds light on the problem of model choice in empirical bankruptcy prediction of corporates and suggests some directions and future examination.

Keywords: Bankruptcy, Altman, Grover, Ohlson, Springate, Zmijewski

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