Portability of Multiple Discriminant Analysis Prediction Model of Listed Firms: An Emerging Market Perspective

Abstract

This paper tests the portability of Altman’s (2000) Z-score model in predicting corporate failure of listed firms in an emerging market, Ghana. The study applies the model on financial statements of fifteen (15) firms listed on Ghana Stock Exchange (GSE) for 2013 fiscal year. The empirical result shows that 66.7 percent of the listed firms were misclassified as failed firms (Type II Error) and correctly classified 33.3 percent as success firms or safe zone firms. The study concludes that the Altman (2000) financial model is not portable in Ghana due to high type II error rate and this is calling more research for the use of non-financial models in predicting corporate failure in emerging markets.

Keywords: Multiple Discriminant Analysis, Corporate failure, Altman Z-score, Listed firms, Ghana