Validity of Altman's Z Score Model in Determining Corporate Sickness Among Indian Companies

for 42 percent in manufacturing GDP in 1950-51, its share increased to 55 percent in 1979-80 and 70 percent in 2007-08 (Papola, 2012). Notwithstanding the rapid growth, quite a considerable number of companies were declared sick for various reasons in the recent decades. It is observed that that the incidence of corporate sickness has become common phenomenon from the fact that 5,689 companies having an accumulated losses to the tune of Rs.1,52,188.76 crores have been so far registered with BIFR as on 06.08.20101. This calls for distinguishing sick companies from non-sick ones. Several researches have employed Altman’s model in determining how well Z score model could distinguish between bankrupt firms and non-bankrupt firms. This paper attempts to determine the extent to which Altman’s Z-Score model well predicts corporate sickness among Indian companies. The study employs a sample of 30 companies declared sick by Board for Industrial

and Financial Reconstruction (BIFR) and 30 non-sick companies in India during the period 2007 - 2011. The results of the study showed evidence that Altman’s Z score model does not fully predict sickness among Indian companies. It is found that the percentage of sick companies correctly classified is maximum at 83.33% in the second year prior to sickness.