PREDICTION OF FINANCIAL DISTRESS: A

COMPARISON BETWEEN GOVERNMENT LINKED

COMPANIES (GLC’s) AND NON-GOVERNMENT

LINKED COMPANIES (GLC’s) IN MALAYSIA

SURESH YELUMALAI

(BF095229)

BACHELOR OF FINANCE (HONS)

COLLEGE OF BUSINESS MANAGEMENT AND ACCOUNTING

DEPARTMENT OF ECONOMICS AND FINANCE

UNIVERSITI TENAGA NASIONAL

2017
 DECLARATION

I hereby declare that this project paper is my original work expect for quotations and citations

which have been duly acknowledged and that is has not been previously or concurrently

submitted for any other degree at Universiti Tenaga Nasional or other institutions.

Date of submission

16th January 2017

 ACKNOWLEDGEMENT

First, I would like thanks to God for giving me the strength and courage until I manage to finish

this project paper successfully. At the beginning of the process of doing this project paper, I

have gone through some hardship and difficulty at first as it requires lot of research, with

support from my family and friends, and guidance from all the lecturers, I manage to finish this

project paper.

I owe the successful completion of this project paper to those who have willingly and

relentlessly offered their guidance and assistance to me. I would also like to express my

gratitude to my dearest Supervisor, Madam. Normaisarah Binti Abdul Manaf, whose

professional and scholarly advisor ship enabled me to successfully complete my study.

I have grasped much from the rich knowledge and professional experience of Madam.

Normaisarah Binti Abdul Manaf. All her active support and participation in the work was most

essential for the success of my work. She has been always a source of continuous

encouragement, moral and confidence.

Without her support and encouragement, I would not be successful completing this project

paper. So, I would like to share this dissertation, successful with her. Lastly, I would not forge

to all my friends who had helped me a lot in the process of completing this dissertation.
 PREDICTION OF FINANCIAL DISTRESS: A COMPARISON BETWEEN

GOVERNMENT LINKED COMPANIES AND NON-GOVERNMENT LINKED

COMPANIES IN MALAYSIA

ABSTRACT

The study of bankruptcy is becoming more relevant and important as even large companies are

falling that cause economic and social problems to the society. Using financial distress models

to predict failure in advance is for the most businesses essential in their decision-making

process. Hence, this study involves a critical investigation in the applicability of the Altman

(1968) Z-score models in predicting financial distress to comparison between GLC’s and non-

GLC in Malaysia. Thus, the study present addresses the financial distress measure among 20

GLC’s and 20 non-GLC listed in Bursa Malaysia over the period of 5 years (2011 until 2015).

This paper asses the financial distress determinant measured by Z-score statistics model. In

addition, determinant such as liquidity, leverage, profitability, and market value were too. The

Pearson product moment correlation and regression analysis were used to examine the degree

of impact between determinants corporate financial distress. Liquidity and Profitability were

found has a significant impact in determining corporate financial distress. However, leverage

and market value have no significant impact. Finally, independent t-test shows that results,

liquidity, profitability, and market value were to be found has a significant effect and only

leverage has not significant impact to determinant corporate financial distress of GLC’S and

non-GLC’s.

Keywords: Financial distress, Altman Z-score, liquidity, leverage, profitability, market value,

GLC’s and NGLC’s.

 CONTENTS

Page

Declaration I
Acknowledgment II
Abstract III
Table of Content IV
List of Tables V
List of Figures VI
List Appendixes VI

CHAPTER
ONE INTRODUCTION
1.1 Background of the Study 1
1.2 Problem Statement 3
1.3 Research Questions 4
1.4 Objective of the Study 4
1.5 Significance of the Study 5
1.6 Scope of the Study 5
1.7 Format of Project Paper 6
TWO LITERATURE REVIEW
2.1 Introduction 7
2.2 Prediction of Financial Distress 7
2.3 Summary of Chapter 12
THREE DATA AND METHODOLOGY
3.1 Introduction 13
3.2 Data 13
3.3 Research Framework 14
3.4 Determine of Variables 15
3.5 Methodology 21
3.6 Hypothesis 26
3.7 Summary of Chapter 28
FOUR RESULTS
4.1 Introduction 29
4.2 Interpretation of Results 30
4.3 Summary of Chapter 38
FIVE CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction 39
5.2 Conclusions 40
5.3 Recommendations 41

LIST OF TABLES
3.1 Description of Z-score 20
3.2 Financial Ratios 20
3.3 Level of significant 22
3.4 Relationship between variables 22
4.1 Description Statistics 30
4.2 Correlation 31
4.3 Model Summary 31
4.4 Anova 33
4.5 Coefficients 33
4.6 Group Statistics 35
4.6 Independent sample t-test 37
5.1 Summary of the Regression Findings 40

LIST OF FIGURES
3.1 Regression Model 24
3.2 Research Model 24
3.3 Independent sample t-test 25

LIST OF APPENDIXES
A LIST OF COMPANIES SELECTED AS SAMPLE 42
LIST OF TABLES
3.1 Description of Z-score 20
3.2 Financial Ratios 20
3.3 Level of significant 22
3.4 Relationship between variables 22
4.1 Description Statistics 30
4.2 Correlation 31
4.3 Model Summary 31
4.4 Anova 33
4.5 Coefficients 33
4.6 Group Statistics 35
4.6 Independent sample t-test 37
5.1 Summary of the Regression Findings 40
LIST OF FIGURES
3.1 Regression Model 24
3.2 Research Model 24
3.3 Independent sample t-test 25

LIST OF APPENDIXES
A LIST OF COMPANIES SELECTED AS SAMPLE 42
CHAPTER I: INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Prediction of Financial Distress firms are most common area of research in Finance. The ability

to predict financial distress is very important to the business themselves and current investors.

Financial distress is a situation where a firm’s operating cash are not sufficient to satisfy current

obligations and the firm is forced to take corrective action in term of corporate finance.

Financial distress may lead a firm to default on contract, and it may involve financial restricting

between the firm, its creditors, and its equity investors. Generally financial distress will cause

bankruptcy. Financial distress is usually related to some costs to the company and there are

known as costs of financial distress. The change of financial distress increases when a firm has

high illiquid assets, fixed costs, or revenues that are sensitive to economic downturns. A

company under financial distress will incur regarding the case, such as more expensive

financing, opportunity costs of projects and less productive employees. The firm’s costs of

borrowing additional capital will usually increase, making it more difficult and expensive to

raise the much needed funds. In an effect to satisfy short-term obligations, management might

pass on profitable longer-term projects.

A common example of costs of financial distress is bankruptcy costs. These direct costs include

auditor’s fees, legal fees, management fees and other payment. As cost of financial distress

can occur even if bankruptcy is avoided (indirect costs). Financial distress in companies can

lead to problem that can reduce the efficiency of management. As maximizing firm value and

shareholder value cease to be equivalent managers who’s are responsible to shareholders might

try to transfer values from creditors to shareholders.

Government linked companies are defined as state-owned companies or, in other countries, as

state-owned enterprise. GLC’s also known as companies that have primary commercial

1
objective and in which the government has direct controlling stake. Controlling stakes refers

to the Government’s ability to appoint Board of Direct members, senior management, and make

major decisions such as contract awards, strategy, restricting and financing, acquisitions and

investment for their funds to GLC investment for either Government Linked companies either

directly or through Government Linked Companies. Government; Linked Investment

Companies are companies that allocate some or all of their funds to GLC investment. The

category of GLC’s companies that are controlled by the respective State Governments and

State-level agencies. This includes companies the Malaysian of Government taking over the

controls directly as its agencies such as Khazanah Nasional, Bank Negara Malaysia, KWSP

and MOF Inc. Includes companies where GLC’s themselves have a controlling stake, i.e.

subsidiaries and affiliates of GLC’s.

While non-Government Linked Companies is a business in which the government doesn’t

intervene in their business. There are allocated their funds by themselves and make decision

by the board that is chosen by the company. And all the decision making usually will be

discussed during the annual general meeting.

This study an analysis the prediction of financial distress of public listed companies in Bursa

Malaysia for the period of 2011 to 2015. It’s also comparative GLC’s with non-GLC’s to

investigate the implication of government affiliation. This study’s also examines the financial

ratios are very important to determine the companies into distress or not distress. However, this

study will use financial ratios such as liquidity, leverage, and probability and market value to

Altman Z-score statistics to predict of financial distress.

2
1.2 PROBLEM STATEMENT

Prediction of corporate financial distress has increase rapidly in every year. Therefore, this

study an able to analysis the current financial position of the GLC’s and non-GLC’s companies

in Malaysia after financial crisis according to Ahmad Khaliq (2014). In addition, the study

“whether the GLC’s and non-GLC’s companies can be adequately uses financial statement

information to predict the distress companies listed in Bursa Malaysia.

Moreover, within this content of distress situation, use financial ratios as a major factors to find

the predictor for business failure. Similarly, previous studies has focuses on financial crisis.

Thus, this study will uses financial statement information to analysis the prediction of financial

distress companies. I develop the Altman Z-score model to test distress companies in term of

ratios analysis.

1.3 RESEARCH QUESTIONS

The following analysis questions are developed for study:

1) What is impact between GLC’s and Non-GLC’s in prediction of financial distress?

2) There is any impact between financial distress and financial performance in term of

ratio analysis?

3
1.4 OBJECTIVE OF THE STUDY

The objective of this study is to evaluate the prediction of financial distress with comparative

GLC’s and NON-GLC’s firms listed in the Bursa Malaysia.

The objective of the study are as follows:

• To determine the difference between GLC’s and Non-GLC’s by prediction of

Financial Distress

• To compare financial performance with GLC’s and Non-GLC’s in term of ratio

analysis

1.5 SIGNIFICANT OF THE STUDY

This study uses an extended period from 2011 to 2015.Therefore, the result are going to

be additionally comprehensive results. Naturally, using a financial ratio to determine the

prediction of distress. This study exploitation Altman’s Z-score in deciding the financial

state of affairs. Second, if offer some insight on the performance compared between GLC’s

and NON-GLC’s see that one is bankruptcy in future whether or Government intervention

or while not government intervention. Third, result in future hope can propose some

suggestions to each variety of firms particularly in rising their performance.

4
1.6 SCOPE OF THE STUDY

These research aims to develop Altman Z-score model of comparison Government Linked

Companies and Non-Government Linked Companies supported the annual report on

company for year 2011 to 2015. Moreover, these studies are lined with 20 GLC’s and 20

Non-GLC’s. The information sets are unit sourced from printed financial statement and

record information in annual report that was collected from Bursa Malaysia web site and

Thomson Reuters (Uniten Library).

1.7 FORMAT OF PROJECT PAPER

The study is organized into five chapters. The chapters include 4 sections which are

literature review, research data and methodology, results and findings therefore discussion

the conclusion and recommendations of this study. The chapters are outline as follows:

The first chapter introduces the overview of study. Fist are background of the study, next

the main problem statement of study, 3rd research questions and research objective. After

that, significant and scope of this paper.

Next, chapter 2 literature review in relevance to previous studies to analysis the prediction

models. There are totally difference companies and country to develop the prediction

models to mention in this chapter. They are used different theoretical framework to explore

the Altman Z-score in their researches.

Chapter 3 will discuss data and methodology. The session are such as source of data,

research framework, and determine the variables. Next, research methodology and

hypothesis as well as presented in this chapter.

5
Chapter 4 discuss the results and findings of research. The chapter will explain in detail

which is descriptive statistics, correlation and regression to predict the Altman Z-score

model. Next, Independent sample t-test also compare between GLC’s and non-GLC’s

companies.

Finally, Chapter five will present conclusion of the research. This chapter also elaborate

main objective of this paper. Chapter 5 also suggestions to avoid the prediction of financial

distress companies supported GLC’s and NON-GLC’s. End of this paper also will present

implication for further researcher and discus limitations of this paper.

6
CHAPTER II: LITERATURE REVIEW

2.1 INTRODUCTION

Based on previous studies the financial researcher research about financial distress to

analysis of historical financial performance. They are used past financial statement data to

judge compared between GLC’s and non-GLC. These ratios embrace profitability,

liquidity, leverage, and market value further because of the potency of management in order

to reduce its impact (Bernard Baimwera, 2014). Financial ratios can help to develop the

performance of firm from past, present and future studies. According to Bernard Baimwera

2014, the importance of exploitation financial ratio in financial analysis within the

performance of analysis of firms. This chapter also included Altman Z- score model,

Multiple Discriminant Analysis to develop their studies.

2.2 FINANCIAL DISTRESS

2.2.1 LIQUIDITY RATIO

In my study, this research tend are reach to focus on liquidity ratio to analysis financial

distress companies. Previous Studies that have used liquidity ratios were Salehi & Abedini

(2009), Paranowo (2010), Baimwera (2006), and Sulaiman and Sanda (2001), Their study

give some proof on the quality of accounting info specifically the financial ratio as an

indicator of present, past and future performance. In general, financial analysts and

investors were used financial ratio to judge or to spot the financial distress or bankruptcy.

Paranowo (2010) used debt service coverage ratio for liquidity ratio and realize liquidity

are significant variable. There are used Public listed non-financial firm in Indonesia for the

7
period from 2004 to 2008. In additional, Baimwera (2006) using Z-score model notice the

liquidity had not significant impact in deciding company financial distress.

Sulaiman and Sanda (2001) used logit model to predict the company failure in Malaysia.

There are used information from Bursa Malaysia from annual report. The bankruptcy firms

utilized in their analysis were people who had not probe for court protection and therefore

the firms that have probe for court protection. The findings shows that liquidity are

negatively significant with company failure.

Used debt service coverage ratio (DSCR) as their proxy, Nyamboga, Omwario, Muriuki,

Gongera (2014). They are sample consists of 38 non-financial public corporation listed

within the NSE. Therefore, the information is obtained from the financial report from 2007

to 2010 of the chosen companies. Altman Z-score model is employed to work out the

financial distress of firms. They realize that liquidity had not important results to determine

the financial distress.

2.2.2 LEVERAGE RATIO

Their studies debate the connection between leverage ratios and financial distress are

Paranowo (2010), Baimwera (2006), Shamser et.al (2001), Tan (2012), and Malik (2013).

Paranowo (2010) found leverage includes completely important relationship with debt

service coverage (DSC). Therefore, Baimwera (2006) study used DSC to analysis the

financial distress firms. The result indicate that leverage had not significant result with

financial distress.

8
The study show out the link between financial distress and financial performance by Tan

(2012) were applied. The result that corporations have an occasional level of leverage tend

to try higher than those corporations with a better quantity of leverage.

Subsequently, Leader (2013) study of Pakistanis firm that non-financial corporation from

2003 to 2010 were listed on Karachi Exchange (KSE). He used Z-score model and the

result show that the leverage are positively significant impact to the financial distressed.

2.2.3 PROFITABILITY RATIO

Profitability ratio are among the quality variable use within the study on the connection

between the financial distressed and firm specific issue. Previous study that discusses

bankruptcy exploitation profitability. They are Paranowo (2010), Salehi and Abedini

(2009), Bhunia, Khan and Mukhuti (2011) and Li (2007) and also Geng, Bose and Ghen

(2013).

Paranowo (2010) study disclosed the profitability don’t had an effect on the company

financial issues. That’s ends up in the concluded that prime profit isn’t a guarantee the 13

firms will satisfy its liability. Thus, financially distressed companies with higher

profitability is also appealing acquisition targets to companies’ income and skills to

enhance their financial distress issues. That result’s supported Corporations in Indonesian.

Salehi and Abedini (2009) to determine the connection between profitability and financial

distress prediction of listed corporation on Tehran Stock Market (TES). They are use the

multiple regression because the valuation of models created mistreatment the info from the

2 teams. The first cluster consists of 30 corporation that don’t have any financial

difficulties, and for the second cluster, likewise, contain of 30 corporation facing the

9
financial difficulties. Their study find out profitability has negative relationship with

financial distressed.

Bhunia (2011) used firms listed on Indian Securities market as a sample. The data was

collected from the company’s annual report. The sampled are non-failed corporations from

year 2011 to 2010 are analysis in their study. The result’s shows totally different from

previous studies whenever they are notice 14 that profitability isn’t significantly connected

with financial distressed.

Li (2007) were used a rough set (RS) model to evaluate the prediction of financial distress

for Chinese listed companies. The sample consists of 212 financial distressed companies

and 212 non-financial distress companies from years 1998 to 2005. The results shows that

profitability features a strong an impact on company financial distress.

2.2.4 MARKET VALUE

Baimwera (2006) study the relationship between book market value of equity the ratio and

distress risk. The study used Ohlson test to compare with the both variables. The danger of

distress is peroxide by the score of Ohlson. Thus, the correlation coefficients results show

out negative relationship between distress and book market value of equity.

Altman (2003) used book market ratio to predict the bankruptcy. The results found out

positively significant on bankruptcy prediction.

10
2.3 CHAPTER SUMMARY

This chapter discussed the literature reviews from previous studies in prediction of

corporate financial distress. Bernard Baimwera, 2014 stated in Altman Z-score financial

distressed using financial variables. The model developed to predict bankruptcy that use

financial statement ratio.

From the Literature review that investors and creditors should be keep consider about their

companies Z-score on regular basic time. The Altman Z-score model not only can used to

determine the companies financial problem but also can predict the distress in future from

using financial statement data. The studies using this model very helpful to an investors to

invest their share in healthy companies and take a good decision making.

11
CHAPTER III: DATA AND METHODOLOGY

3.1 INTRODUCTION

This research will explore either the financial position of GLC’s and non-GLC are endure

enlargement stage right currently. During this paper, the measurement methodology are

used with empirical study. Additionally, Ary et.al (2010) once research workers desires to

spot the relations between 2 or more variables, correlation coefficients can be an accurate

possibility to see the variables are connected or not, support information obtained from two

or more variables, correlation style illustrate the two variables very directly which are

positive correlation or negative correlation. The computer software to analysis the data has

been presenting in findings. Finally, the models also provide a valid model.

3.2 DATA

Based on data collected from 20 companies from GLC’s and 20 non-LGC listed on Bursa

Malaysia from year 2011 until 2015. Based on their previous studies there is different

between these two group of companies.

3.2.1 SOURCE OF DATA

This research uses quantitative or also known as secondary data, similar to those in printed

and unpublished reports, articles, academic journal, books, the web, and different

publications. This info are won’t to determine the application of the models in predicting

financial distress. This study will incorporate a review of existing literature. The study can

use an analysis of financial statements to check the prognostic ability of the models in

predicting financial distress. The analysis can utilize ratios that are regarding the models

within the study. It’s a time series data of 5 years from 2011 until 2015 on yearly basic.

12
3.3 RESEARCH FRAMEWORK

Figure 3.1

INDEPENDENT VARIABLE:

LIQUIDITY RATIO

• CACL

• WCTA

LEVERAGE RATIO DEPENDENT VARIABLE:

• TDTA
FINANCIAL DISTRESS
• CLNW
Altman Z-score

PROFITABILITY RATIO

• EBTA

• ROE

• ROA

MARKET VALUE

• BTMV

13
3.4 DETERMINE OF VARIABLES

After discussing from different financial researchers in past studies from literature review, this

paper, was able to identify dependent and independent variables. The dependent variables is

financial distress (Altman Z-score) and independent variables are liquidity, profitability,

leverage and market value.

DEPENDENT VARIABLES MEASUREMENT

3.4.1 FINANCIAL DISTRESS (Altman Z-score)

The most familiar model for prediction is Altman Z-score. The model developed by Edward I.

Altman in 1968 based on sample of 40 companies listed in Bursa Malaysia with 20 GLC’s and

20 non-GLC between 2 types of groups. These ratios were selected once a careful analysis out

of the various financial distress and this model issued for measure of financial distress. The

ratios are calculated from total assets, total liabilities, sales, and retained earnings, EBIT

(earnings before interest and taxes), market price of firm. These ratios are given below:

X1 = Working capital/Total assets

X2 = Retained earnings/Total assets

X3 = EBIT/Total assets

X4 = Market value of equity/Total Liabilities

X5 = Sales/Total Assets

Z = Overall index

𝒁 = 𝟏. 𝟐𝑿𝟏 + 𝟏. 𝟒𝑿𝟐 + 𝟑. 𝟑𝑿𝟑 + 𝟎. 𝟔𝑿𝟒 + 𝟏. 𝟎𝑿𝟓

14
 Table 3.1: Description of Z-score

No Range of Z-score Interpretation

1 Greater than 2.99 The financial institution is in good position and safe

from financial problem

2 Between 2.99 to 1.81 Warning Sign! It is considered as gray are as the

financial institution have changes to faces bankruptcy

problem

3 Less than 1.81 Bad Indication! The financial institution is most likely

to be heading toward bankruptcy problem. Necessary

actions are needed to avoid from the worst situation.

X1 = Working capital/Total assets

Working capital over with total assets is used to measure the liquidity of the companies. It’s

been used vary commonly in normal finance. Working capital invariably continually been

acting as a blood for the companies. It’s used to meet day business wants. Working capital is

that the difference of total current assets and total liabilities. It’s in addition mentioned as net

liquid assets. It tells how much ratio of total assets is used for maintain daily needs or however

much a section of total assets belongs to working capital.

X2 = Retained earnings/Total assets

It’s one of the very important ratios in standard finance. Its measure helps us analyze

profitability of the companies. Age of the companies can be very important issues of retained

earnings, usually newly formed firms have low retained earnings whereas recent and matured

giants have high retained earnings. Most, of the days, companies having retained earnings use

it as a source of funding. In different words corporations with high preserved earnings have

15
low use of debt whereas firm’s low retained earnings are extraordinarily leveraged. This ratio

tells us what proportion of preserved earnings are being described by total assets required or

what quantity a district o total assets belongs to retained earnings which can be used as source

of finance.

X3 = EBIT/Total assets

This ratio shows the earning capability of the corporate with regard ti its assets. The final word

goal of the corporate is profit earning or rather profit maximization thus their failure and

success depends on their earning capability. This ratio tells what proportion of EBIT is being

represented by total assets or what quantity an area of total assets belongs to EBIT.

X4 = Market Value of equity/Total Liabilities

Market value of equity over total liabilities is very important ratio for evaluating net value of

the company among the market. It’s explains value of the corporate over its total liabilities

Equity is measured by combined market value of all shares of stock, preferred and common,

while liabilities includes both current and long term. The measure shows how much the firm’s

assets can decline in value (measured by market value of equity plus debt) before the liabilities

exceed the assets and the firm becomes insolvent.

X5 = Sales/Total Assets

The capita-turnover ratio is a standard financial ratio illustrating the sales generating ability of

the firm’s assets. It is one measure of management’s capacity in dealing with competitive

conditions. This final ratio is quite important because it is the least significant ratio on an

individual basis. In fact, based on the independent t-test significant test, it would not have

appeared at all. However, because of its unique relationship to order other variables in the

model, the sales/total assets ratio ranks second in it contribution to the overall test ability of the

model.
16
3.4.2 INDEPENDENT VARIABLES MEASUREMENT

Eight financial variables are used because the independent variables within the study. They are

CACL, WCTA, TDTA, TCLNW, EBTA, ROE, ROA and BTMV. These ratios are chosen

based on the results from previous study and they usually have been used in the bankruptcy

studies.

In Finance terms, liquidity is outlined because the company capability to fulfill their financial

obligations as they become due or in alternative words, it measure the power of the company

to pay the short-term debt on time. The ratio of capital/total assets (WCTA), which is a measure

of the firm’s net assets compared with total capitalization, it’s employed as a measure for

liquidity. Generally for a firm that systematically has losses in their business, the present assets

will become lower in regard to the total assets. Merwin (1942) indicates that the net working

capital to total assets the best indicator for financial distress. The second ratio used to proxy

for liquidity is that the current ratio. The current ratio is calculated as current assets/current

liabilities.

The second independent variables used is that the leverage ratio. Leverage ratio also determines

the balance cots mixture of the corporate and its impact on operating income. Those that are

involved with long-term financial position of the firm are long-run creditors adore debenture

holders and monetary establishment. The overall debt/total assets (TDTA) is used as measure

of leverage which shows the long-term financial obligations of the corporate. Will increase in

leverage can increase the profitability of the financial difficulties. With the high degree of

leverage, there is possibility that the corporate can have insufficient cash flow to service debt

that the return in bankruptcy. The second ration wont to live the leverage is current

liabilities/net value (CLNW) that shows the value of debt funding is additionally business

17
activities and become too much for the company to handle. This might lead to bankruptcy,

which might leave nothing to the shareholders.

Profitability ratio live the performance of the corporate. Earnings before interest and taxes to

total assets (EBTA) is used as a measure of profitability. This ratio measure the particular

productivity of the assets of the firm when abstracting tax. Since an absolute existence relies

on this ratio, it looks applicable to use this ratio in studies relating to company failures. In

addition bankruptcy or financial condition happens once the total liabilities exceed the truthful

valuation of the assets of the firm with the worth determined by the ability of the item.

The return equity (ROE) measured as net income to common equity is used as second measure

for profitability. High return on common equity show that firm have use their equity and this

will increase the profitability of the company. High return on common equity leads to higher

share prices. Analysis believe that the return on common equity is a necessary indicator of the

company’s in public listed health.

The return on assets (ROA) is that the third measure of profitability utilized in the study

peroxide by net income to total assets. Companies that can’t utilize their assets effectively tends

to go bankruptcy. Calculated by dividing a company’s annual earning by its total assets.

Book-to-market ratio (BTMV) is the ratio of the book value of a firm's to its market value. The

book value is a historical cost or accounting value of the firm. The market value is determined

on the stock market by market capitalization. The ratio of book-to-market can be used to

identify whether the securities are undervalued or overvalued. In basic terms, if the ratio is

above one then it is undervalued; if it is less than one, stocks are overvalued.

18
Measurement of variables

That variables are used in this study as shown in table 3.1 and 3.2.

Financial Distress (Altman Z-score)

X1 = Working Capital/Total Assets

X2 = Retained Earnings/Total Assets
X3 = Earnings before Interest and Taxes/Total Assets
X4 = Market Value of Equity/Total Liability
X5 = Sales/Total Assets

Table 3.2: Financial Ratios

Independent Variables Formula

CACL Current Assets/Current Liability

WCTA Working Capital/Total Assets

TDTA Total Debts/Total Assets

CLNW Current Liability/Net Working

EBTA EBIT/Total Assets

ROE Net Income/Total Equity

ROA Net income/Total Assets

BTMV Book Value of Equity/Total Liabilities

3.5 METHODOLOGY

This research study is based on panel data to identify different prediction of financial

distress. For the analysis, all the analyses are pass by the Statistical Packages for Social

Science Software, also know SPSS software. I t can be used for many unvaried and

multivariate Statistical analysis and has facilities for sorting and merging files and

manipulating data. There are two basic Statistical tools are used to analyzed the data, which

19
 is regression and correlation. First of all financial distress, Profitability, Leverage,

Liquidity, and Market Value ratios are calculated separately one by one. Distress is

calculated by Altman’s Z-score model. It is based 4 financial ratios. These ratios were

selected after careful analysis out of many financial ratios and are used for measurement of

financial distress. Ratios were calculated from total assets, total liabilities, market value of

firm, and EBIT (earnings before interest and taxes).

3.5.1 CORRELATION

Correlation is a measured as a correlation coefficient indicates the strength and direction of

a linear relationship between two variables. That’s in contrast with the usage of the term in

conversational speech, denoting any relationship, not essentially linear. In generally

statistical usage, correlation or co-correlation refers to the departure of 2 random variables

from independent. During this broad sense there are many coefficients, mensuration the

degree of correlation, custom made to the character of the info. A number of different

coefficient are used for various things. The simplest know is that the person product-

moment correlation coefficient that is obtained by dividing the covariance of the two

variables by product of their standard deviations.

Table 3.3 Level of significant

Significant ( 2 tailed/ 1 tailed) Result

p-value < 0.01 Significant at 1% level

p-value < 0.05 Significant at 5% level

The level of significant is to determine whether the hypothesis is significant or not based on

the positive correlation or negative correlation to decide whether to accept or reject the

hypothesis.

20
3.5.2 REGRESSION

In statistical modeling, regression analysis could be a statistical method for estimating the

relationship among variables. That includes several techniques for modeling and analyzing

many variables. Once the main focus on is on the link between a dependent variable

quantity and one or additional independent variables (or ‘predictor’). More specifically,

regression analysis helps one perceive however the typical value of the dependent variable

(or ‘criterion variable) changes to the independent variable is diverse, whereas the

alternative independent variables are held fixed.

Most typically, regression analysis estimates the conditional expectation of the dependent

variable given the independent variable is average of value the dependent variable when

the independent variables are fixed. Less ordinarily. The main target is on quartile, or

alternative location parameter not the conditional distribution of the dependent variable

given the independent variables. Altogether all cases, the estimation target may be perform

of the independent variables referred to as called the regression perform.

Regression analysis is wide used for prediction and forecasting, wherever its use has

substantial overlap with the sector of machine learning. Regression analysis is in addition

used to understand among the independent variables area unit involving the dependent

variable, and to explore the forms of these relationships. In restricted circumstances,

regression analysis may be wont to infer causative relationships between the independent

and dependent variables. But this can lead to illusions or false relationships, therefore

caution is advisable; as an example, correlation doesn’t imply causation.

The performance of regression analysis ways in apply depends on the form of the data

generating process, and the approach it relates to the regression approach getting used.

Since existence style of the data-generating process is usually not notable, regression

21
analysis often depends to some extent on making assumptions about this process. These

assumptions are generally testable is a comfortable quantity of data is out there. Regression

models for prediction are often useful even when the assumptions square measure

moderately violated, though they’ll not perform optimally. However, in many applications,

particularly with small effects or questions of relation supported experimental information,

regression ways will offer dishonest results.

Table 3.4 Relationship between variables

Relationship Result

R Square = > 60% Strong impact

R Square = < 60% Weak impact

If the R square indicating more than 60%, then it will show us a strong impact between the

variables. But if the R square less than 60%, it will show us weak impact between dependent

and independent variables.

Regression Model

Figure: 3.2

𝛾 = 𝛼 + 𝛽1 Χ1 + 𝛽2 Χ 2 … … . . +𝜀

Where,

𝛾 = Dependent Variable

𝛼 = Constant Value

𝛽1 𝛽2 = Regression Coefficient

Χ = Independent Variable

22
 𝜀 = Error term

There is my studies research model

Figure: 3.3

𝑍 = 𝛼 + 𝛽1 𝑙𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦𝑔𝑙𝑐 + 𝛽2 𝑙𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑔𝑙𝑐 + 𝛽3 𝑝𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦𝑔𝑙𝑐 + 𝛽4 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒𝑔𝑙𝑐 + 𝜀

𝑍 = 𝛼 + 𝛽1 𝑙𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦𝑛𝑔𝑙𝑐 + 𝛽2 𝑙𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑛𝑔𝑙𝑐 + 𝛽3 𝑝𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦𝑛𝑔𝑙𝑐 + 𝛽4 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒𝑛𝑔𝑙𝑐

+𝜀

Where,

𝛾 = Altman Z-score (Dependent Variable)

𝛼 = Constant Value

𝛽1 𝛽2 = Regression Coefficient

Χ = Independent Variable

𝜀 = Error term

3.5.3 INDEPENDENT t-TEST

The independent-samples t-test compares the means between two unrelated groups on the

same continuous, dependent variables. In these case it’s Government Linked Companies

and Non-Government Linked Companies. Therefore, it’s determine whether the hypothesis

significance or not based on negative or positive correlation to decide whether to accept or

to reject the hypothesis.

There is a model as follows:

23
Figure 3.4

√(𝑛1 − 1)𝑆12 + (𝑛2 − 1)𝑆22

𝑆𝜌 =
𝑛1 + 𝑛2 − 2

Where,

n1 = Sample size (i.e., number of observations) of first sample

n2 = Sample size (i.e., number of observations) of second sample

s1 = Standard deviation of first of sample

s2 = Standard deviation of second of sample

Sp = Pooled standard deviation

3.6 HYPOTHESES

Four hypotheses have been developed for this study:

3.6.1 LIQUIDITY RATIO

Liquidity measure the company’s ability to fulfil its current obligations. Failure to have

enough liquidity will lead to poor creditworthiness as the company cannot fulfil financial

obligations. This will lead to loss of creditor’s confidence. Previous studies which found

positive relationship between liquidity and financial distress are Muhammad Suleiman

(2001), Rosliza (2006), and Abdullah et al (2008).

However, negative relationship can occur when the higher the liquidity, the lower would

be the probability of bankruptcy. Studies that find negative relationship between and

24
distress are Nuha (1996), Belgey (1996) and Deakin (1972). Nevertheless, Shirata (1998)

find that liquidity is not an important factor. Belgey (1990) and Deakin (1972) show that

working capital ratio to total assets is an important factor. Hence, my study hypothesized

that

H0: There is a significant impact between the uses of liquidity and also Altman Z-score

to determine financial distress of GLC and Non-GLC’s.

H1: There is no significant impact between the uses of liquidity and Altman Z-score to

determine financial distress of GLC and Non-GLC’s.

3.6.2 LEVERAGE RATIO

The higher the amount of leverage in the company, the greater is the financial risk. Prior

researchers who have found a significant positive relationship between corporate financial

distress and leverage are Altman (2000), Theodossiou et al. (1996), Zulkarnain (2009),

Paranowo (2010), Halim (2008), Malik (2013), and Keige (1991). However, some prior

study finds that leverage is not significantly related to corporate financial distress. Those

studies are form Baimwera (2006), and Nyamboga, Omwario, Muriuki, Gongera (2014),

Baimwera and Muriuki (2014). Hence, this study hypothesis that

H0: There is a significant effect between corporate financial distress and leverage of

GLC and Non-GLC’s.

H1: There is no significant effect between corporate financial distress and leverage of

GLC and Non-GLC’s.

25
3.6.3 PROFITABILITY RATIO

Companies with poor profitability are associated with potentially bankrupt firm previous

researchers find profitability has a positive significant relationship with firms financial

distress level (Altman, Haldeman, & Narayanan, 1977, Altman, 1968; Kimura, 1980;

Nyamboga, Omwario, Muriuki, Gongera, 2014; Malik, 2013 and Baimwera and Muriuki,

2014).

However, some studies find that profitability does not lead to the distress (Kiragu, 1993;

Paranowo, 2010; Kaver, 1980). Hence, this paper hypothesis that

H0: There is a significant impact between profitability to determine financial distress of

the GLC and NON-GLC’s.

H1: There is no significant impact between profitability to determine financial distress

of the GLC and NON-GLC’s.

3.6.4 MARKET VALUE

Baimwera (2006) and Dichev (1998) find that book-to-market ratio is negatively

significantly to distress. Fama and French (1992) find that book to market ratio is

significantly positively and related to distress is an important factor to measure the risk.

Hence, it is hypothesis that

H0: There is a significant effect between market value and also Altman Z-score to

determine financial distress of the GLC and NON-GLC’s.

H1: There is no significant effect between market value and also Altman Z-score to

determine financial distress of the GLC and NON-GLC’s.

26
3.7 SUMMARY OF THIS CHAPTER

In the chapter, the research methodology followed to achieve an acceptable result is

discussed. The identification and definition of the financial distress in terms of the

objectives of the study is presented. In the study, data selected to comparison between

GLC’s and NON-GLC from 2011 until 2015.The characteristics of the whether the both

type of companies are distress or not based on both variables. The next chapter will be the

research data presentation, analysis, and discussion.

CHAPTER IV: RESULTS

4.1 INTRODUCTION

This chapter provides the results which has been obtained through the analysis done based

on the data collected from Government Linked Companies and Non-Government Linked

Companies listed from Bursa Malaysia. There was collected by calculating ratios from the

annual reports of GLC’s and Non-GLC’s companies in Malaysia. The total population was

40 companies. However, the total sample used for analysis is 200 samples.

These research are using two hypothesis which is regression and sample t-test.

In Statistics regression analysis include any techniques for modelling and analyzing several

variables, when the focus is on the impact between a dependent variable and one or more

independent variable.

The Independent sample t-test compares mean of two independent group in order to

determine whether there is statistical evidence that the associated population means are

significant different.

27
 SPSS model are used in order to run the t-test in which significantly with (1%) significant

level. The often termed to determine between two group. (In these research are GLC and

Non-GLC). It is to determine whether the hypothesis significance or not based on the

positive and negative correlation to decide whether to accept or reject the hypothesis.

4.2 INTERPRETATION OF RESULTS

4.2.1 Correlation

Table 4.1 Descriptive Statistics

Descriptive Statistics

Mean Std. Deviation N

Z_SCORE 2.1288 1.55492 200
Liquidity 1.1230 1.95832 200
Leverage -4.3626 70.04573 200
Profitability 0.1530 0.28242 200
Market Value 2.0614 6.86559 200

Table 4.1 shows the result of the descriptive statistics by each of the independent variable. The

table of descriptive statistics shows the mean and standard deviation for analysis z-score with

independent variables. The number of participants in each variable (N) is 200.

The maximum value of mean is market value at 2.0614., the second lowest is liquidity at 1.1230

and the minimum value of mean at -4.3626 for leverage. However, the value of mean for

profitability at 0.1530.

Subsequently, the maximum value of standard deviation is leverage at 70.04573. Next, the

minimum value of standard deviation is profitability at 0.28242. However, the second highest

value of standard deviation at 6.86559 for market value. Moreover, the liquidity is 1.1230.

Lastly, the value of mean and standard deviation for Z-score is 2.1288 and 1.55492 were,

respectively.

28
 Table 4.2 Correlation

Correlations
Z_SCORE Liquidity Leverage Profitability Market Value
Z_SCORE Pearson 1 .205** -0.010 .419** -0.043
Correlation
Sig. (2-tailed) 0.004 0.884 0.000 0.543
N 200 200 200 200 200
Liquidity Pearson .205** 1 0.025 -0.003 .150*
Correlation
Sig. (2-tailed) 0.004 0.726 0.968 0.034
N 200 200 200 200 200
Leverage Pearson -0.010 0.025 1 0.013 0.017
Correlation
Sig. (2-tailed) 0.884 0.726 0.852 0.808
N 200 200 200 200 200
Profitability Pearson .419** -0.003 0.013 1 -0.063
Correlation
Sig. (2-tailed) 0.000 0.968 0.852 0.376
N 200 200 200 200 200
Market Value Pearson -0.043 .150* 0.017 -0.063 1
Correlation
Sig. (2-tailed) 0.543 0.034 0.808 0.376
N 200 200 200 200 200
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

The correlation analysis shows the relationship between the variables, where a higher

correlation shows a higher level of association between the variable while a lower

correlation indicates a lower level of association. The results shows that all variables not

highly correlated.

Based on the table 4.2 shows that the correlation analysis between Z-score with all

independent variables. Under the Liquidity, the relationship between Z-score and liquidity

have a significant value at 0.004 which is correlate at level 0.01 for the Pearson correlation

has 25%. So, the null hypothesis will be accepted which has a significant relationship

between liquidity and Financial distress.

29
 Second, the relationship between leverage and financial distress not have significant value

at 0.884 and Pearson correlation -1%. Therefore, the null hypothesis will be rejected which

is no significant relationship between leverage and financial distress.

Moreover, the relationship between financial distress and Profitability have a significant

0.000 which is correlate at 0.01. For Pearson Correlation has 41.90%. Hence, the null

hypothesis will be accepted has a significant relationship between Financial distress and

Profitability.

Lastly, the relationship between Z-score and Market Value have not significant level at

0.543. For the Pearson correlate has negative correlate at -4.3%. Therefore, the null

hypothesis will be rejected which is no significant relationship between financial distress

and market value.

4.2.2 Regression

A regression equation expresses the linear relationship between 2 or more variables. In the

regression analysis, the dependent variable (DV) and the independent variable have to be

identified and these are usually based on theoretical basic.

Table 4.3 Model Summary

Model Summary b
Std. Change Statistics
Adjusted Error of R
R R the Square Sig. F Durbin-
Model R Square Square Estimate Change F Change df1 df2 Change Watson
1 .470a 0.221 0.205 1.38657 0.221 13.814 4 195 0.000 1.668
a. Predictors: (Constant), Market Value, Leverage, Profitability, Liquidity
b. Dependent Variable: Z_SCORE

The table 4.3 provides the 𝑅 and 𝑅 2 values. The 𝑅 represents the value of𝑅, the multiple

correlation coefficient. 𝑅 Can be considered to be one measure of the quality of the

30
 prediction of the dependent variable which is Altman Z-score. A value of 0.470, indicates

a bad level of prediction. The 𝑅 square value also called the coefficient of determination,

which is proportion of variance in the dependent variable that can be explained by the

independent variables which is 0.221 or 22.1%.

Table 4.4 Anova

ANOVAa
Sum of Mean
Model df F Sig.
Squares Square
Regression 106.236 4 26.559 13.814 .000b
1 Residual 374.903 195 1.923
Total 481.140 199
a. Dependent Variable: Z_SCORE
b. Predictors: (Constant), Market Value, Leverage, Profitability, Liquidity

The table 4.4 that shows the output of the ANOVA analysis and whether there is a

statistically difference between regression model. We can see that the significant value is

0.000 (𝑃 = 0.00), which is below 0.05.Therefore is a statistically significant impact

between financial performance to determine financial distress of the GLC’s and Non-

GLC’s.

Table 4.5 Coefficients

Coefficients a
Unstandardized Standardized 95.0% Confidence
Coefficients Coefficients Interval for B
Std. Lower Upper
Model B Error Beta t Sig. Bound Bound
1 (Constant) 1.608 0.128 12.581 0.000 1.356 1.860
Liquidity 0.170 0.051 0.214 3.345 0.001 0.070 0.270
Leverage 0.000 0.001 -0.020 -0.322 0.748 -0.003 0.002
Profitability 2.295 0.349 0.417 6.580 0.000 1.607 2.983
Market -0.011 0.015 -0.049 -0.760 0.448 -0.040 0.018
Value
a. Dependent Variable: Z_SCORE

31
The table 4.5 is obtained from coefficients table, as shown above, the general form of the

equation to predict Financial Distress from Liquidity, Leverage, Profitability and Market

Value, were predicted: 𝑭𝒊𝒏𝒂𝒏𝒄𝒊𝒂𝒍 𝑫𝒊𝒔𝒕𝒓𝒆𝒔𝒔 = 𝟏. 𝟔𝟎𝟖 + (𝟎. 𝟏𝟕𝟎 × 𝒍𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚) +

(𝟎. 𝟎𝟎𝟎 × 𝒍𝒆𝒗𝒆𝒓𝒂𝒈𝒆) + (𝒑𝒓𝒐𝒇𝒊𝒕𝒂𝒃𝒊𝒍𝒊𝒕𝒚 × 𝟐. 𝟐𝟗𝟓) + (−𝟎. 𝟎𝟏𝟏 × 𝒎𝒂𝒓𝒌𝒆𝒕 𝒗𝒂𝒍𝒖𝒆).

Unstandardized coefficients indicate how much the dependent variable varies with an

independent variable when all other independent variable are held constant. For liquidity,

the coefficient (parameter estimate) is 0.170. So, for every percent increase in liquidity, a

0.170 percent increase in z-score is predicted, holding all other variables constant. This is

significant different from 0.

Next, for every percent increase in leverage, there is 0.000.This means that for 1-percent

increase in the z-score, we expect an approximately 0.05 point increase in z-score. That is

mean there have not statistically significant; in other word that is not different from 0.

There is coefficients for profitability 2.295. Hence, for every percent increase in

profitability we expect 2.295 increase in the Z-score. This is statistically significant.

Lastly, coefficients for market value is -0.011 decrease in the predicted Z-score, holding all

other variables constant. The variable market value is technically not statistically

significant different from 0. Because the p-value is greater than 0.05.

We can test for the statistical significance of each of the independent variables. This tests

whether the unstandardized (or standardized) coefficients are equal to 0 (zero) in the

population. If p < 0.05, we can conclude that the coefficients are statistically significant

different to 0 (zero).The t-value and corresponding p-value are located in the “t” and “sig”.

Respectively, as table above

The constant is significant different from 0 at 0.05 alpha level. However, having significant

intercept is seldom interesting.

32
 The coefficient for liquidity 0.170 is statistically significant impact from 0 using alpha of

0.05 because its p-value 0.001, which is smaller than 0.05.

The coefficient for leverage 0.0.00 is not statistically significant impact from 0 because its

p-value 0.748, which is larger than 0.05.

The coefficient for profitability 2.295 is statistically significant impact because its p-value

0.000, which is less than 0.05.

The coefficient for market value -0.011 is not statistically significant impact from 0 using

alpha of 0.05 because its p-value 0.448, which is more than 0.05.

[95% confidence interval]- These are the 95% confidence interval for coefficients. The

confidence interval are related to the p-values such that the coefficient will not be

statistically significant at alpha = 0.05 if the 95% confidence interval includes zero. These

confidence intervals can help to put the estimate from the coefficient into perspective by

seeing how much the value vary.

4.4.3 Independent sample t-test

Table 4.6 Group Statistics

Group Statistics
Std.
Std. Error
GROUP N Mean Deviation Mean
Liquidity GLC 100 0.8354 0.73126 0.07313
NGLC 100 1.4106 2.64706 0.26471
Leverage GLC 100 -9.1725 99.00067 9.90007
NGLC 100 0.4473 3.80767 0.38077
Profitability GLC 100 0.0755 0.17187 0.01719
NGLC 100 0.2306 0.34445 0.03445
Market GLC 100 0.6108 0.70902 0.07090
Value
NGLC 100 3.5119 9.48659 0.94866
Z_SCORE GLC 100 1.5035 0.94871 0.09487
NGLC 100 2.7541 1.78046 0.17805

33
Table 4.6 shows the result of the descriptive statistics by each of the independent variable.

The table of descriptive statistics shows the mean and standard deviation for analysis z-

score with independent variables. The number of participants in each condition (N) is 100.

The descriptive statistics of the liquidity variable are shown table 4.1 revealed that the mean

for the NGLC’s conditions was greater than the mean for the GLC’s condition. Hence, I

conclude that participants in the NGLC’s condition were able to recall significantly more

words than participants in the GLC’s.

Since, Leverage for NGLC’s was better than GLC’s because the value of mean are 0.4473

for NLGC and -9.1725 GLC’s. As I conclude that, GLC’s have more debt than NGLC.

Next, Profitability and market value of mean NGLC was better than GLC, which were

0.2306 and 3.5119 respectively. While for NGLC and GLC were 0.755 and 0.6108.

Finally, Altman Z-score, the value of mean NLGC higher than GLC which is 2.7541 for

NGLC and 1.503 for GLC. Since the group statistics box revealed that mean for NLGC

conditions better than the mean of GLC. Therefore, I can conclude that participants in the

NGLC conditions were able to recall statistically significant impact more than participants

in GLC conditions.

34
 Table 4.6 Independent sample t-test

Independent Samples Test

Levene's Test
for Equality of
Variances t-test for Equality of Means
95% Confidence
Interval of the
Sig. (2- Mean Std. Error Difference
F Sig. t df tailed) Difference Difference Lower Upper
Liquidity Equal 7.109 0.008 -2.095 198 0.037 -0.57520 0.27462 -1.11676 -0.03364
variances
assumed
Equal -2.095 114.023 0.038 -0.57520 0.27462 -1.11922 -0.03118
variances
not
assumed
Leverage Equal 3.732 0.055 -0.971 198 0.333 -9.61980 9.90739 -29.15734 9.91774
variances
assumed
Equal -0.971 99.293 0.334 -9.61980 9.90739 -29.27749 10.03789
variances
not
assumed
Profitability Equal 28.010 0.000 -4.028 198 0.000 -0.15507 0.03850 -0.23098 -0.07915
variances
assumed
Equal -4.028 145.420 0.000 -0.15507 0.03850 -0.23115 -0.07898
variances
not
assumed
Market Value Equal 20.782 0.000 -3.050 198 0.003 -2.90110 0.95130 -4.77709 -1.02511
variances
assumed
Equal -3.050 100.106 0.003 -2.90110 0.95130 -4.78844 -1.01376
variances
not
assumed
Z_SCORE Equal 32.555 0.000 -6.199 198 0.000 -1.25060 0.20174 -1.64844 -0.85276
variances
assumed
Equal -6.199 151.024 0.000 -1.25060 0.20174 -1.64921 -0.85199
variances
not
assumed

The table 4.6 shows independent sample t-test, displays the results most relevant to the

independent sample t-test. There are two parts that provide different pieces information

which is Levene’s Test for Equality of variances and t-test for equality for means. The

Levene’r test is printed as 7.109 which is F statistics for liquidity. Meanwhile, 3.732 for

leverage stated as F statistics. However, F statistics for profitability and market value

printed as 28.010 and 20.782 are respectively. Lastly, the dependent variable (Z-score) are

35
32.555. The p-value of Levene’s test printed as 0.008, 0.055, 0.000, 0.000, are respectively

which is liquidity, leverage, profitability, and market value. So, I accepted the null

hypothesis of Levene’s test and conclude that has significant between all 4 independent

variable.

The t-test for Equality of Means provides Sig (2-Tailed). First, Liquidity value 0.038 which

is less than 0.008 .This value is less than 0.05. Because of this, I can conclude that there is

a statistically significant impact different between the mean number of words recalled for

the GLC’s and non-GLC’s conditions. Next, Leverage is 0.333 which is more than 0.05.

Hence, I can conclude that there is a not statistically significant impact different between

both group which GLC’s and non-GLC’s. Moreover, profitability and market value the sig

(2-Tailed) are 0.000 and 0.003. This value is less than 0.05. Because of this, we can

conclude that is a statistically significant difference between the mean number of words

recalled for the GLC’s and GLC’s conditions. Finally, I can conclude there is has 3

statistically significant impact between financial distress and liquidity, profitability and

market value of the GLC’s and non-GLC’s.

4.3 CHAPTER SUMMARY

The main goal of the chapter was presentation and analysis of the empirical study to test

the practical predictive ability of Altman Z-score (financial distress) in GLC’s and Non-

GLC’s companies listed in Bursa Malaysia.

The analyses of empirical data are discussed the predictive results of these model from

2011 to 2015 prior to bankruptcy. The success of these models depends on the ability to

predict failure companies among GLC’s and NGLC’s.

36
CHAPTER V: CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

The central theme of the study is to investigate the prediction ability of Altman (1968)

bankruptcy predictions models in sampled GLC’s and non-GLC’s companies listed in

Bursa Malaysia. As researcher and financial analysts used bankruptcy predictions model

routinely to evaluate the financial health of companies, testing the practical applicability of

model is essential. Improper application of models may lead into mistaken managerial

judgments and misunderstanding of actual facts that may lead to wrong conclusion and

decisions. It’s important for the business society such as creditors, customers, suppliers,

employers, and government in general to know the financial well-being of companies.

Early awareness of financial distress may helping finding intermediate solutions to the

problems, or the partners may know the consequences of the problems and be aware in

advance. Failing to predict bankruptcy causes damage not only for the company failing but

also affects all the creditors of the failing business as well as the economic environment of

a society. The major reason why business failure has such as major impact on the economy

of country is the costs associated with going bankruptcy.

The main objective of this study was to determine the impact between financial

performance and financial distress measurement among 100 GLC’s and 100 NGLC’s listed

companies in Bursa Malaysia over the period of 5 years (2011 until 2015). This study uses

an Altman Z-score to determine financial distressed. The variable consists of liquidity ratio

(CACL and NWCTA), leverage (TDTA and CLNWC), profitability (EBITA, ROE, and

ROA), and market value (BTMV). Two models are developed which is regression and

independent sample t-test.

37
 5.2 CONCLUSIONS

Based on the table 5.1, is the summary of findings that kind had been related to the

hypothesis which been developed earlier. Thus, conclusion were made based on the

findings obtained through result generated as below.

Table 5.1 Summary of the Regression Findings

Variables Hypothesis Results

Liquidity Ratio There is a significant impact between the uses of liquidity and Altman Z-

score to determine financial distress of GLC and Non-GLC’s. Accepted HO

Leverage Ratio There is no significant effect between corporate financial distress and

leverage of GLC and Non-GLC’s. Rejected HO

Profitability Ratio There is a significant impact between profitability to determine financial

distress of the GLC and NON-GLC’s. Accepted HO

Market Value Ratio There is no significant effect between market value and also Altman Z-

score to determine financial distress of the GLC and NON-GLC’s. Rejected HO

The results that obtained from the research and test carried out revealed that, the 2 ratios

out of 4 ratios were found that is a no statistically significant impact difference between

GLC’s and NGLC’s companies which are leverage and market value. In supporting to these

findings, there are many existing studies that show a not significant consequences of

corporate financial distress has generated a lot of research interest and numerous methods

have been applied to develop prediction models. (Bernard Baimwera, 2014) and (Tania

Hamid, 2016).

Similarly, two ratios were found to have statistically significant impact between NGLC’s

and GLC companies which are liquidity and profitability ratio. It’s important to understand

38
the early warning indicators and implications of corporate financial distress. If the

stakeholder can predict a company is on its way to a financial distress, it helps to take a

necessary action in time. In supporting by (Bernard Baimwera, 2014) has a significant

impact financial distress companies in Nairobi Securities Exchange (NSE).

5.3 RECOMMENDATIONS

It’s important for future researcher and analysts understand prediction models during their

application. I can recommend here is that, rather than comparing GLC and NGLC’s maybe

for the study can compare our financial distress with other country. For example other

Asian country or Middle East. From there we can figure out how they run their business.

Furthermore, studies also can compare with established companies from worldwide.

For future studies are required toward change the coefficient value connected to every ratio

in Z-score model as per the inputs from the studied industries. In addition, additional

analysis is also opting to check among totally different industries to come back up with

strong significant impact. Future analysis need to focus more on different model to research

the distressed prediction of the firm. In future researches should also investigate

development of bankruptcy predictions model using different statistical methodology other

than Altman Z-score, such as Multivariate Discriminant Analysis (MDA), Artificial Neural

Networks (ANN’s), Logit Analysis, to compare and the most efficient model.

Last, future researchers can also may extend the period of time to get more comprehensive

results.

39
5.4 LIMITATIONS OF THE STUDY

There are several limitations in this study. The first limitation of this study is time period.

This study are conducted within 4 months. Due to the time limitations, this study could not

observe the prediction of financial distressed in all Malaysian listed firms. Thus, the sample

covers from Properties sectors, Construction sectors, Consumer products, Plantation,

Industrial products, Trading-Services sector and IPC sector and excludes such as hotels,

mining and finance and etc. Finally, the result would be better if a larger sample of size is

use.

40
REFERENCES

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate

bankruptcy. Journal of Finance, 23,589-609.

Altman, E. I. (1993) Corporate Financial Distress and Bankruptcy (2nd ed.), New York: John

Wiley.

Altman, E. I., Haldeman, R. G. & Narayanan, P. (1977). Zeta Analysis: A new model to identify

bankruptcy risk of corporations. Journal of Banking and Finance, 1, 9-24.

Baimwera, B. (2006). The relationship between book-to-market ratio of equity and distress for

stocks quoted at the NSE. Nairobi: University of Nairobi

Abdullah, Ahmad, H., & Rus, M. R. (2008). Predicting corporate failure of Malaysia’s listed

companies: comparing multiple discriminant analysis, logistic regression and the hazard model.

International Research Journal of Finance and Economics, 1-17.

Keige, P. (1991). Business failure prediction using discriminate analysis. Nairobi: University of

Nairobi

Mohamed, S., Ang, J. & Ahmadu, U. S. (2001). Predicting corporate failure in Malaysia: An

application of the logit model to financial ratio analysis. Asian Academy of Management Journal,

6 (l), 99-118.

Paranowo, K. e. (2010). Determinant of Corporate Financial Distress in an Emerging Market

Economy: Empirical Evidence from the Indonesian Stock Exchange 2004-2008. International

Research Journal of Finance and Economics, 80-88.

Sitati, A., & Odipo, M. K. (2009). Evaluation of applicability of Altman's revised model in

prediction of Financial Distress: A case of companies quoted in the Nairobi Stock Exchange.

41
Soo, W. L., Fauzias, M. N. & Puan Yatim. (2001). Predicting Corporate Financial distress using

the logit model: The case of Malaysia. Asian Academy of Management Journal, 6 (l), 49-61

Titman, S., & Opler, C. T. (1994). Financial distress and corporate performance. The Journal of

Finance, 1015-1040.

Zulkarnain, M. S., Mohamad Ali, A. H., Annuar, M. N. & Zainal Abidin, M. (2001). Forecasting

corporate failure in Malaysian industrial sector firms. Asian Academy of Management Journal,

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Zulkarnain, M. S., Shamsher, M., Mohamad Ali, A. H. & Annuar, M. N. (2002). Determinants of

corporate success and failure: The Malaysian case. Akauntan Nasional, 23.

42
 A. LIST OF COMPANIES SELECTED AS SAMPLE
GLC’s Companies
1) AXIATA GROUP BHD
2) BOUSTHEAD HOLDING BHD
3) CHEMICAL COMPANY OF MALAYSIA BHD
4) EDARAN BHD
5) GAMUDA BHD
6) KPJ HEALTHCARE BHD
7) KULIM MALAYSIA BHD
8) MALAYSIA AIRPORTS HOLDING BHD
9) MALAYSIA INTERNATIONAL SHIPPING
CORPORATION
10) MALAYSIA RESOURCES CORPORATION
11) MEDIA PRIMA BHD
12) PETRONAS DAGANGAN BHD
13) PETRONAS GAS BHD
14) PHARMANIAGA BHD
15) SIME DARBY BHD
16) TELEKOM MALAYSIA BHD
17) TENAGA NASIONAL BHD
18) TH PLANTATIONS BHD
19) UEM SUNRICE BHD
20) ZELAN BHD
NON-GLC’s Companies
1) ASTRO MALAYSIA HOLDINGS BHD
2) BONIA CORPORATIONS BHD
3) BRITISH AMERICAN TOBACCO
MALAYSIA BHD
4) CHIN HIN GROUP BHD
5) DIGI COM BHD
6) EKOVEST BHD
7) FARLIM GROUP MALAYSIA BHD
8) FOCUS POINT HOLDINGS BHD
9) FRASER & NEAVE HOLDINGS BHD
10) GENTING BHD
11) IOI CORPORATION BHD
12) MAGNUM BHD
13) MAXIS BHD
14) NESTLE MALAYSIA BHD
15) NTPM HOLDINGS BHD
16) PENSONIC HOLDINGS BHD
17) SOLUTION ENGINEERING HOLDINGS
BHD
18) STAR MEDIA GROUP BHD
19) SUNWAY BHD
20) THE STORE CORPORATIONS BHD
43