Title: Default prediction for audited and unaudited private firms under economic and financial stress: evidence from Zimbabwe

Authors: Frank Ranganai Matenda; Mabutho Sibanda; Eriyoti Chikodza; Victor Gumbo

Addresses: School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, Westville Campus, Durban, South Africa ' School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, Westville Campus, Durban, South Africa ' Great Zimbabwe University, P.O. Box 1235, Masvingo, Zimbabwe ' University of Botswana, Private Bag UB 0022, Gaborone, Botswana

Abstract: This study develops stepwise logit models to predict default probability for audited and unaudited Zimbabwean non-financial privately-owned firms under downturn conditions. The research paper's main intention is to identify and interpret the predictors of default probability for audited and unaudited Zimbabwean private corporations. For pertinence and effectiveness reasons, the study applies two unique real-world datasets of defaulted and non-defaulted audited and unaudited private corporates. The findings of this study indicate that under downturn conditions, accounting information is imperative in differentiating defaulted and non-defaulted Zimbabwean private firms, and the predictive capacity of the private firm default models is augmented by including macroeconomic factors. Moreover, the study reveals that the drivers of default risk for audited and unaudited Zimbabwean private firms are dissimilar. As a recommendation, firm and loan characteristics, accounting information and macroeconomic variables must be incorporated when predicting default probability for private firms under downturn conditions.

Keywords: default probability; audited and unaudited private firms; economic and financial stress; developing economy; predictor variables; stepwise logit models.

DOI: 10.1504/AAJFA.2023.128617

Afro-Asian Journal of Finance and Accounting, 2023 Vol.13 No.1, pp.85 - 124

Received: 26 Nov 2019
Accepted: 29 Jul 2020
Published online: 31 Jan 2023 *