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Application of Altman Z-Score to RBI Defaulters

Authors: Sharma Arpita, Theresa Lilly, Mhatre Joohi, Sajid Mohammad

Journal: Asian Journal of Research in Business Economics and Management

Publication date: 2019

Publisher: Indian Journals

URL: click here


Abstract:

In the current times the ongoing economic reforms, helps in curbing the frauds and further caused stress in the financial market space. Thus analysing and predicting financial pain is critical in order to make effective valuation of the financial state of corporations, thus protecting the rights of investors and creditors. This paper applied the Altman Z-score model to the Indian environment by taking 19 companies on the Reserve Bank of India‘s list of defaulters in 2017. The findings indicate that Altman Z score model is accurate in predicting probability of default and thus relevant in times of the NPA crisis. However, the study suffers from the limitation of relying solely on the Altman Z-score model for measuring financial distress. The relatively small sample of 19 companies may pose a limitation on the transferability to other settings.