The Altman emerging market z-score model: verifying its validity as a predictor of corporate failure in the case of banks in Ghana

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Date
2021
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KNUST
Abstract
Banks in Ghana contribute considerably to the country’s economy by creating employment opportunities. However, in spite of the significant contributions that the Banking sector plays in the Ghanaian economy, corporate failure of the sector is high. Research has scarcely been done in predicting corporate failure of Banks using the emerging market Z-score. This research sought to bridge this gap by applying the emerging market Z-score model by Altman: confirming its legitimacy as a predictor of business failure in the case of Banks in Ghana. The primary goals of the research are how to put into operation the emerging market Z-score model in predicting corporate failure and to evaluate financial performance through the analysis of the annual audited report of 12 banks in Ghana. This study was anchored on various theories including resource dependence, liquidity preference, pecking order, and entropy theory. The descriptive research design was used in this research. The target population was Banks in Ghana. The study adopted a purposive sampling method to collect secondary data from the 12 banks. Data was analyzed using Microsoft word excel and presented in the form of figures and tables. The outcome of the research discovered that the following ratios are significant discriminators and predictors of corporate failure of quoted banks in Ghana: book value of equity to total liabilities, retained earnings to total assets, profit before interest and tax to total assets, working capital to total assets. Consequently, the emerging market z-score ratio model was found to be a robust model in predicting corporate failure of listed banks in Ghana. The study recommends the adoption of the EM Z-score model as a utility predictor of corporate failure in Ghana. This study has implications for the policy since it establishes a versatile model of preventing the corporate failure of Banks whose sustainability is pertinent in achieving the countries sustainable development agenda and economic growth. The study also contributes to the existing body of knowledge of extending the discourse of the application of the EM Z-score ratio model in predicting corporate failure by applying discriminate analysis. It was established in this study that the prognostic capability of the emerging market Z-score model was precise in predicting corporate failure of quoted banks in Ghana; hence the powers that be can use this model to take precautionary actions.
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A research project submitted in partial fulfilment of the requirements for the award of the degree in master of business administration (accounting option).
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