An accuracy test of Altman and Zmijewski accounting-based bankruptcy models

The aim of this research is to test if conventional accounting-based bankruptcyprediction model parameters are still valid when applied to the most recent financial ratios of Portugal’s small, medium, and large companies. We estimate Altman’s Z’’-score and Zmijewski bankruptcy probability for all of Portugal’s companies with more than 10 workers and 1 million euros in assets from 2016 to 2021. We excluded micro-enterprises to avoid biased results. We also excluded banks and insurance companies. We find that both models maintain reasonable accuracy, although lower than in the initial years, and that the Zmijewski model has a lower accuracy (81%) than the Z’’-score (85.5%). This is the first study comparing the accuracy of the Z’’-Score and Zmijewski models run on a sample comprising all of Portugal’s companies.