Studying the Relationship between Performance and Z-Scores for Manufacturing Firms in Singapore

Abstract

Singapore is a key leading economy in the Asia Pacific region. This study examines the relationship between the financial health, as measured by the Altman Z-Score, and corporate performance, as measured by the Return on Equity (ROE), of listed manufacturing companies in this market. A linear regression has been conducted between these variables to determine the magnitude and direction of their relationships. The trends of Z-Scores over a five-year period have also been analysed. The analysis covers the period from 2013 to 2017 (inclusive) and yields a statistically positive correlation between ROE and the Z-Score for the market. Singapore registered relatively moderate-to-healthy mean and median Z-Scores. These findings further support the strong economic position of this market in Asia.

Bankruptcy Risk and Financial Performance of Companies Listed on the Stock Exchange of Thailand

“…Most previous research, namely Foo (2015), Foo and Pathak (2016), Liang and Pathak (2018a), and Liang and Pathak (2018b) found positive relationships between financial health and performance of firms operating in the stock markets of Singapore, Hong Kong, South Korea, and Taiwan. Interestingly, these research studies measured the financial health using the bankruptcy risk prediction model, Altman's Z-score, and ROE.…”

“…Nevertheless, financial performance of firms measured from market information may be influenced by external factors like economic, political, social, and technological factors. According to a review of related research papers, popular indicators used to represent the financial performance of companies are return on equity (ROE), return on assets (ROA) and Tobin's Q (Garcia-Castro, Ariño,& Canela, 2010;Rodgers, Choy, & Guiral, 2013;Foo, 2015;Foo & Pathak, 2016;Liang & Pathak, 2018a;Liang & Pathak, 2018b;Hillary, Nyang'au, & Ngacho, 2018;Ho and Mohd-Raff, 2018).…”

“…Similarly, Liang and Pathak (2018a) examined the relationship between financial health and performance of manufacturing companies listed on China's Stock Exchange between 2013 and 2017. Liang and Pathak (2018b) studied the relationship between financial health and performance for manufacturing companies listed on the Singapore stock exchange during 2013-2017. Both Liang and Pathak (2018a) and Liang and Pathak (2018b) found that financial health measured by Altman's Z-score is statistically positively correlated with financial performance as measured by ROE.…”

“…Liang and Pathak (2018b) studied the relationship between financial health and performance for manufacturing companies listed on the Singapore stock exchange during 2013-2017. Both Liang and Pathak (2018a) and Liang and Pathak (2018b) found that financial health measured by Altman's Z-score is statistically positively correlated with financial performance as measured by ROE.…”

“…However, the number of papers on the impact of bankruptcy risk on financial performance is still small and the effect of bankruptcy risk on financial performance has led to inconclusive results. Analyses have been done on the impact of default risk and financial performance in Asian markets such as Singapore (Foo, 2015;Liang & Pathak, 2018b), Hong Kong (Foo, 2015), South Korea (Foo & Pathak, 2016), Taiwan (Foo & Pathak, 2016), People's Republic of China (Liang & Pathak, 2018a), Pakistan (Mahmood, Rizwan, & Rashid, 2018) and Malaysia (Ho & Raff, 2019). So far there is no research published on the impact of the risk of default on financial performance of companies listed on the Stock Exchange of Thailand.…”