Assessing the Probability of Failure by Using Altman’s Model and Exploring its Relationship with Company Size: An Evidence from Indian
Keywords:corporate failure, Altman’s model, probability of failure, Altman Z-score model
Corporate failure is the situation when a firm becomes unable to pay debts when they come due and the market value of assets becomes lower than its total liabilities. The purpose of the paper is to explore the relationship between firm size and probability of failure for Indian steel sector companies by employing regression model. Altman’s Z-score model has been used to derive the firm’s probability of failure, whereas total assets and total sales are utilized as indicators for firm’s size. The results indicate that size is inversely related to the probability of failure. With an increase in the size of the firm; probability of failure decreases and vice-versa.
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