Validity Analysis of Financial Failure Prediction Models During the Covid-19 Pandemic

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Yaşar Üniversitesi

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Unexpected bankruptcies of companies cause significant damage to company partners, investors, employees, countries, commercial and financial creditors. In this context, the financial failure risks should be constantly measured and controlled. However, it is important to constantly check the validity of financial models that measure the risk of the financial failure of companies. Because the higher the validity rates of these models, the higher the probability of investors and researchers to make the right decision according to the results obtained from these models. In this context, validity tests are widely used in the literature, namely Altman (1968), Springate (1978), Ohlson (1980), Fulmer (1984), Zmijewski (1984), Canada (1987) and Grove (2001) models, were applied in this study. The sample of this study consists of 16 companies that operate in the energy sector in the US markets. The universe of the study includes all companies that operate in the energy sector. The research results have shown that the Zmijewski model has been the most successful model for predicting company bankruptcies in the energy sector in the USA. The model that best predicted bankrupt and non-bankrupt companies 1 year and 3 years before the bankruptcy is again the Zmijewski model. However, Fulmer is the best bankruptcy predictor 2 years before the bankruptcy. On the other hand, according to other results of the research, the accuracy rate of Altman, Springate, Canadian, Fulmer and Grover models is well below the average compared to other studies in the literature.


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Financial Failure Prediction Models, Financial Performance, Company Bankruptcies, Energy Sector, US Markets


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