The Association between Altman Z-Score and Stock Price Volatility During the Covid-19 Pandemic
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Abstract
The purpose of this study is to examine whether Altman Z-Score model proven to be able to separate firms with high bankruptcy risk from firms with strong financial positions can predict stock price volatility during Covid-19 pandemic. This study selects only service firms listed on the Stock Exchange of Thailand because these firms were negatively affected by the Covid-19 pandemic. Samples are divided into two groups i.e. high bankruptcy risk group and low bankruptcy risk group as suggested by Altman
Z-Score, then annual stock price volatility during the year 2020 of the two groups are compared using paired sample T-test and regression analysis. The results show empirical evidence that the high bankruptcy risk group has statistically significantly higher stock price volatility than the low bankruptcy risk group. The return on equity (ROE) of the two groups are statistically different, that is the high bankruptcy risk group has a negative ROE while the low bankruptcy risk group has a positive ROE. Moreover, during Covid-19 pandemic which represents uncertain circumstances, investors seem to put more emphasis on firms’ liquidity and solvency than profitability.
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