Business Failure Prediction for Publicly Listed Companies in China

Abstract

This study uses data from Chinese publicly listed companies for the period of September 2000-September 2008 to test the accuracy of Altman's Z-score model in predicting failure of Chinese companies. Prediction accuracy was tested for three Z-score variations: Altman's original model, a reestimated model for which the coefficients in Altman's model were recalculated, and a revised model which used different variables. All three models were found to have significant predictive ability. The reestimated model has higher prediction accuracy for predicting nonfailed firms, but Altman's model has higher prediction accuracy for predicting failed firms. The revised Z-score model has a higher prediction accuracy compared with both the reestimated model and Altman's original model. This study indicates that the Z-score model is a helpful tool in predicting failure of a publicly listed firm in China.