Predicting the Financial Distress of Non-Banking Companies Listed on the Palestine Exchange (PEX)

Abstract

The Palestine economy is prone to challenges arising from turmoil. The nature of its socio-political climate makes it important for investors to critically review the going-concern status of the companies they invest in. Therefore the purpose of this study was to determine the likelihood of non-banking companies on the PEX of going into bankruptcy. The research used data from the financial report of 41 non-banking companies on the PEX grouped in categories of Industry (12), Insurance (7), Investment (10) and Services (12). The reports were for the year ended 2014. Altman’s Z-Score model was used to classify the companies in the various levels of financial position – safe, grey and distress. The study showed that a total of 52% of the total non-banking companies were in financial distress, 24% were in the grey zone and 24% in the safe zone. A sector-by-sector analysis showed that insurance companies were the most likely to file for bankruptcy, then services, investment and industry in that order.

Keywords: Financial Distress, Altman Z-Score, Bankruptcy Prediction, Palestine