The use of Z-Score to predict UTP loans

Abstract

The Z-Score model developed by Altman in 1968 is considered one of the more reliable predictors of bankruptcy. In contraposition to the existing literature, the paper aims to investigate the Z’-Score and Z’’-Score ability to predict unlike-to-pay (UTP) loans, which is an event far earlier than insolvency. To investigate this relation, the study uses a unique sample of UTP loans, provided by a major Italian bank, and applies, as a predictive model, the Logit model, well known in academics. Final results confirm that the Z’-Score and the Z’’-Score are able to forecast UTP loans. Furthermore, the findings of the papers reveal the importance of corporate governance variables in predicting financial failures.

It's a matter of time! CEO turnover and corporate turnarounds in Italy

“…Since in the literature the moment of exit from a crisis is still not clearly defined, and since insolvency procedures can last several years and defaulted companies tend to re-enter a crisis after the first period of recovery (Tron, 2021), we preferred to adopt a more objective approach, using the Altman Z-Score as an indicator of the improvement of a company's economic-financial performance. This ratio, created by Altman (1993), proved to be reliable in the Italian context (Altman et al, 2013;Dallocchio et al, 2020) and more precise than the Z-Score (Altman et al, 2013). Moreover, it does not consider only the profitability of a company, like the ROA typically used in past research (Scafarto et al, 2017), but also other several factors, like the leverage of a company, a key indicator during a turnaround.…”

The Different Impact of Top Executives’ Turnover on Healthy and Restructured Companies

“…Similarly, several studies pointed out as strategic changes are essential to survive in tempestuous environments (Dunphy & Stace, 1988;Kanter, Stein, & Jick, 1992;Garzella 2005;Dallocchio, Ferri, Tron, & Vizzaccaro, 2020) like a turnaround process. As shown by various authors (Lohrke, Bedeian, & Palmer, 2004;Lappalainen & Niskanen, 2012;Alipour, 2013;Pham & Nguyen, 2020), top executives are essential figures to promote a new organizational structure with a significant impact on corporate performance and hence, we think, their renewal is a strategic change, necessary in a turnaround (Pressman, 2007).…”