Title: Factors determining Z-score and corporate failure in Malaysian companies

Authors: Nurul Izzaty Hasanah Azhar; Norziana Lokman; Md. Mahmudul Alam; Jamaliah Said

Addresses: Faculty of Administrative Science and Policy Studies, Universiti Teknologi Mara, 40450 Shah Alam, Malaysia ' Faculty of Administrative Science and Policy Studies, Universiti Teknologi Mara, 40450 Shah Alam, Malaysia ' School of Economics, Finance and Banking,Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia ' Accounting Research Institute, Universiti Teknologi Mara, 40450 Shah Alam, Malaysia

Abstract: Predicting the sustainability of a business is crucial to prevent financial losses among shareholders and investors. This study attempts to evaluate the Altman model for predicting corporate failure in distressed and non-distressed Malaysian companies based on the data of financially troubled companies which are classified as Practice Note 17 (PN17) and matching similar non-PN17 companies during the period 2013 to 2017. This study utilises panel ordinal and panel random effects regressions. Findings show that the liquidity, profitability, leverage, solvency, and efficiency ratios are negatively significantly associated with corporate failure and bankruptcy. The leverage ratio is determined to be the strongest indicator of bankruptcy, followed by profitability, liquidity, solvency, and efficiency ratios. The findings will help companies' management bodies implement suitable strategies to prevent further financial leakage, thereby ensuring continuous and sustainable return on investment and profits for investors and shareholders.

Keywords: corporate failure; financial distress; PN17 companies; ratio analysis; Z-score.

DOI: 10.1504/IJEBR.2021.114381

International Journal of Economics and Business Research, 2021 Vol.21 No.3, pp.370 - 386

Received: 05 Sep 2019
Accepted: 17 May 2020
Published online: 20 Apr 2021 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article