Predicting corporate failure: Some empirical evidence from the UK

Kingsley Opoku Appiah, Joshua Abor

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

Purpose: The purpose of this paper is to use relevant financial information of private medium-sized failed and non-failed manufacturing firms in the UK, during the period 1994-2004 to determine whether corporate failure can be predicted by developing a Z-score model. Design/methodology/approach: Multiple discriminant analysis is used to develop the Z-score to support the notion that Z-score is an innovation to overcome the numerous difficulties associated with using single ratios to measure companies' health or risk of failure. Findings: This paper advances the notion that the net profit margin is superior to the gross profit margin in discriminating between failed and non-failed UK manufacturing companies in terms of its significant contribution to the Z-score, though the latter exceeds the former slightly using the univariate analysis. Originality/value: This research contributes to the area of benchmarking by providing a method to more accurately predict corporate failure.

Original languageEnglish
Pages (from-to)432-444
Number of pages13
JournalBenchmarking
Volume16
Issue number3
DOIs
Publication statusPublished - 29 May 2009
Externally publishedYes

Keywords

  • Bankruptcy
  • Business failures
  • United Kingdom

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