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Title

The Application of Altman, Zmijewski and Neural Network Bankruptcy Prediction Models to Domestic Textile-Related Manufacturing Firms: A Comparative Analysis

Author

Paula Weller, Nova Southeastern UniversityFollow

Date of Award

2010

Document Type

Dissertation - NSU Access Only

Degree Name

Doctor of Business Administration (DBA)

Department

H. Wayne Huizenga School of Business and Entrepreneurship

Advisor

Andrew Sherbo

Committee Member

Calvert C. McGregor, Jr.

Committee Member

Pan Yatrakis

Abstract

Some of the largest United States bankruptcies of publicly-traded non-financial firms have occurred within the last decade. The continuing need to improve bankruptcy prediction has generated numerous research studies utilizing various prediction models. The purpose of this study is to test the usefulness of the multiple discriminant, probit, and artificial neural network (ANN) models in predicting bankruptcy in the United States textile-related industry.

Financial data is examined for 47 bankrupt and 104 non-bankrupt publicly-traded firms in the textile-related industry during the time period 1998-2004, which includes the events of the Asian currency crisis and increased competition from China. Models developed by Altman (1968), Altman (1983), Zmijewski (1984) are compared to ANNs based upon each of these models. A comparison to an ANN including all of the ratios of the previous models and variables for firm size and domestic sales is also made.

The Altman (1968) model and ANN 68 model are found to have the higher predictive power for one and two years prior to bankruptcy, respectively, for bankrupt firms. The ANN 84 model and the ANN 83 model have the highest correct classification results for nonbankrupt firms for the entire time period. Solvency and leverage variables appear to have the most impact on the bankruptcy prediction of textile-related firms. The additional variables of firm size and domestic sales are not found to improve the predictive accuracy.

This study supports the continued use of the original Altman (1968) model for predicting bankruptcy in a manufacturing industry. Simultaneous utilization of the ANN 83 model to predict nonbankrupt firms is also suggested since the majority of the Altman (1968) variables can be used and the higher potential for improved predictability. This study may be extended to years after 2004 with consideration given to quarterly information, NAICs codes, and leverage variable alternatives.

NSUWorks Citation

Paula Weller. 2010. The Application of Altman, Zmijewski and Neural Network Bankruptcy Prediction Models to Domestic Textile-Related Manufacturing Firms: A Comparative Analysis. Doctoral dissertation. Nova Southeastern University. Retrieved from NSUWorks, H. Wayne Huizenga School of Business and Entrepreneurship. (115)
https://nsuworks.nova.edu/hsbe_etd/115.