Title: Using multiple approaches in the financial distress evaluation of companies listed in the manufacturing segment of the Nairobi Securities Exchange

Authors: James Arasa Agwata

Addresses: Jomo Kenyatta University of Agriculture and Technology, P.O. Box 62000-00200, City Square, Nairobi, Kenya

Abstract: Studies employing various models in the measurement of financial distress in different markets have gained prominence in the last few decades. This study assesses the effectiveness and the generalisability of three bankruptcy prediction models, i.e., the original Altman Z-score model, Ohlson O-score model and the Zmijewski's model by using industry data from the manufacturing segment of the Nairobi Securities Exchange (NSE). The study has three objectives, i.e., to identify the financially distressed firms in the manufacturing segment, to assess whether a significant difference in bankruptcy prediction methods results existed, and to determine which of the three methods highlighted above is the most conservative in its predictions at the NSE. The study concluded by identifying a number of financially distressed and safe firms as per the method results. It was also noted that a significant difference existed in the prediction results of the three methods highlighted above with the Ohlson O-score method coming out as the most conservative in its outcomes.

Keywords: Nairobi Securities Exchange; NSE; Altman; Ohlson; Zmijewski; financial distress; manufacturing segment; Kenya; discriminant analysis; probit; logit.

DOI: 10.1504/AJAAF.2018.092377

African Journal of Accounting, Auditing and Finance, 2018 Vol.6 No.2, pp.130 - 153

Received: 23 Feb 2018
Accepted: 21 Mar 2018
Published online: 16 Jun 2018 *

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