Studying the Efficiency and the Power of Predicting Bankruptcy of Firms Listed on the Stock Exchange using Springate, Fulmer, and Zavgren Models

Abstract

The ability of predicting bankruptcy of firms and enterprises is one way of helping investors and economic activists to make correct decisions and optimize resources and the more predictions become true, the more correct decisions will be made. In fact, bankruptcy prediction models are the combination of financial ratios which have been tested by experienced analysts for several years in different parts of the world and have been introduced to the world of science and knowledge. In this study, the ability of Springate, Fulmer, and Zavgren models in line with the prediction of financial crisis and bankruptcy of firmslisted on stock exchange has been tested.This study has been done during 2007-2012 within the scope of firms listed onTehran Stock Exchange. The proper model for the estimation of regression model was created by the use of Chow and Hausman Tests and also errors independence (lack of correlation) and Heterogeneity of variance Tests by the help of Mat lab software and finally the results of testing the accuracy average of predictive ability of models were studiedat the same year, one year before occurring bankruptcy, and two years before that. The results of F Test used to compare the accuracy average of the prediction ability of mentioned triple models indicate that at confidence level of 95%, the accuracy average of the prediction ability of mentioned triple models is significantly different; it means that the accuracy of Fulmer Model results is higher than other models of research.

DOI: 10.5901/mjss.2016.v7n4S2p124