The use of Z-Score to predict UTP loans

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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.

Keywords: Financial Distress, Z-Score, Z’-Score, Predictive Modelling, Corporate Finance, Credit Risk, Bankruptcy, UTP Loans

Authors’ individual contribution: Conceptualization – M.D., S.F., A.T., and M.V.; Data Collection – M.D., S.F., A.T., and M.V.; Methodology – M.D., S.F., A.T., and M.V.; Formal analysis – M.D., S.F., A.T., and M.V.; Writing – Original Draft – M.D., S.F., A.T., and M.V.; Writing – Review and Editing – M.D., S.F., A.T., and M.V.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: We thank seminar participants at the 15th International Forum on Knowledge Asset Dynamics (IFKAD), University of Basilicata, Matera (Italy) 9-11 September 2020.

JEL Classification: G17, G32, G33, G34, K33

Received: 10.08.2020
Accepted: 13.10.2020
Published online: 16.10.2020

How to cite this paper: Dallocchio, M., Ferri, S., Tron, A., & Vizzaccaro, M. (2020). The use of Z-Score to predict UTP loans. Corporate Ownership & Control, 18(1), 163-178. https://doi.org/10.22495/cocv18i1art13