Significancy Altman’s Z-Score Method as a Predictor for the Going Concern Opinion of a Corporation

Johannes, Rene (2018) Significancy Altman’s Z-Score Method as a Predictor for the Going Concern Opinion of a Corporation. Universitas Bakrie, Jakarta. (Unpublished)

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Abstract

The bankruptcy prediction methods have utilized Altman’s Z-score method for the last several years connected to the Going Concern Opinion. It is reported in many studies that Z-score is sensitive to changes in accounting figures. Researchers have proposed different variations to conventional Z-score that can improve the prediction accuracy. In this paper, we develop a new multivariate nonlinear model for computing the Z-score. In addition, we develop a new credit risk index by fitting a Pearson Type 3 distribution to the transformed financial ratios. The results of our study have shown that the new Z-score can predict the bankruptcy with an accuracy of 98.6% as compared to 93.5% by Altman’s Z-score. Also, the discriminate analysis revealed that the new transformed financial ratios could predict the bankruptcy probability with an accuracy of 93.0% as compared to 87.4% using the weights of Altman’s Z-score. Only additional sensitivity analysis performed with audit fees divided by total assets as the dependent variable provided any evidence thata going-concern modification in the current year may increase auditfees charged. However, Big-4 fi rms do charge significantly higher fees to their clients. Thus, managers/owners of DSEs should weigh the benefits of having a Big-4 firm audit their financial statements against the higher fees charged by those firms.

Item Type: Other
Uncontrolled Keywords: Bankruptcy, Prediction, Opinion, Going Concern
Subjects: Accounting
Accounting > Tax Accounting
Divisions: Lembaga Penelitian dan Pengembangan
Depositing User: Ahmad Yani
Date Deposited: 21 Feb 2018 04:43
Last Modified: 21 Feb 2018 04:43
URI: http://repository.bakrie.ac.id/id/eprint/1281

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