Predicting Bankruptcy and Financial Fraud of Both Listed and Unlisted Commercial Banks in Ghana Using 3 Z-Score Models

Abstract

The purpose of this study was to assess the possibilities of bankruptcy and financial statement fraud in Ghana’s banking sector. An investigation of the financial statements of the banks for the period 2015 to 2018 was made with the use of Altman’s (2000), Taffler’s (1983), and Beneish (1999) models. The Altman (2000) and Taffler (1983) models are predictors of insolvency or bankruptcy. To unveil the possibilities of financial statement fraud, this study used the Beneish [1999], model. The examination of the bank's annual financial reports with the Beneish model revealed the banks were engaged in earnings manipulation. The Altman [2000] and Taffler [1983] models, on the other hand, brought to light the financial soundness of the banks with an average of 14 (74%) and 18 (95%) of the 19 selected banks correctly classified into the safe zone with an impressive Z-Score performance according to Altman and Taffler’s models respectively. The study, therefore recommends that, if the Beneish model is applied well together with the failure prediction models by researchers, it can provide a reliable finding for policymaking. Also, auditors, investors, management, and stockholders when making good use of the Beneish model, it can provide potential ‘red flags’ for further investigation to be carried out for better audit assignment

Keywords: Altman [2000] Z-score model, Beneish [1999] M-score model, bankruptcy, commercial banks, fraud, financial statement, Ghana, Taffler [1983] Z-score model.

DOI: 10.7176/EJBM/12-12-05

Publication date: April 30^th 2020