The Usefulness of Z-Score Model on Bankruptcy Forecast

The purpose of this study examines whether Z-Score model suggested by Altman is the useful of Korean firms' bankruptcy classification criteria through the empirical test of Altman's Z-Score model on the financial performance. From analytical results, this study develops the hypothesis by comparing the financial performance between good financial health and bankruptcy score by Altman's data using a sample of 374 Korean firms through Korean bankruptcy classification criteria of Altman's Z-Score model during 2001-2010 period. The empirical results indicate that the Altman's Z-Score model is significantly the firm's financial performance as measured by the firm’s profitability(ROA) and ICC(Implied Cost of Capital). These results hold up even after controlling for the differences in the financial leverage and size. Overall, the findings provide directly support to the evidence that the Altman's Z-Score model is able to measure as a bankruptcy classification criteria on Korean firms.