Testing and calibrating the Altman Z-score for the U.K.

Corporate bankruptcy is an important topic, especially since the wake of the recent crisis that trembled financial and monetary institutions. This paper extends on the well-known Altman Z-score model presented by Altman (1968) by calibrating it to the United Kingdom. The calibration is necessary because of the accounting and financial divergence between the UK and the United States. Some of the reasons for divergence are inter- country accounting differences, recent financial developments and differ- ences in corporate governance between the UK and US. The point of view taken when creating the UK model is that Altman’s model is still valid for the US, but there could be a better model predicting UK bankruptcies. First, the model is re-estimated using UK data. Then, secondary tests are performed to test the reliability and predictive power. Finally, the empirical evidence shows a remarkable support for the calibrated model and advocates its usage to companies operating in or working under the financial and accounting conditions of the UK.