Table 1 Summary of Empirical Models Employed and Variables Employed

Altman (1968) Multiple Discriminant Analysis

Z = β ^I X

Where Z is the MDA score and X represent the variables listed.

Cutoff value: Z ≥ 2.675, classified as non-bankrupt

Z < 2.675, classified as bankrupt

WCTA

RETA

EBITA

MVEBVD

SLTA

= Net Working Capital/Total Assets = Retained earnings/Total Assets

= Earnings before interest and taxes/Total assets = Market value of equity/Book value of total liabilities = Sales/Total Assets

Ohlson (1980) Logit Model

P = (1 + exp {-β ^I X})⁻¹

Where P is the probability of bankruptcy and X represents the variables listed. The logit function maps the value of β ^I X to a probability bounded between 0 and 1.

Cutoff value:

Y > 0.5, classified as defaulted otherwise non-defaulted.

SIZE

TLTA

WCTA

CLCA

OENEG

NITA

FUTL

INTWO

CHIN

= Log (Total assets/GNP price-level index). Index with a base 100 for 1968.

= Total liabilities/Total Assets = Working capital/Total Assets= Current Liabilities/Current Assets

= 1 If total liabilities exceed total assets, 0 otherwise. = Net income/Total assets = Funds provided by operations (income from operation after depreciation) divided by total liabilities.

= 1 If net income was negative for the last 2 years, 0 otherwise.

= (NI _t  − NI _t − 1)/(|NI _t | + |NI _t − 1|) where, NI _t is net income for the most recent period. The denominator acts as a level indicator. The variable is thus intended to measure the relative change in net income.

Zmijewski (1984)

Probit model

P = ɸ (β ^I X)

Where, P is the probability of bankruptcy and X represents the variables listed, and ɸ (.) represents the cumulative normal distribution function. The probit function maps the value β ^IX to a probability bounded between 0 and 1.

Cutoff value:

X > 0.5, classified as bankrupt, otherwise non-bankrupt.

NITL

TLTA

CACL

= Net income divided by total liabilities. = Total liabilities divided by total assets. = Current assets divided by current liabilities.