Financial Distress and Stock Market Failures: Lessons from Indian Realty Sector

Abstract

Investors prefer to be safe at market places. Hence, assessing potential financial distress and predicting stock failures are much crucial for their investment decisions. This article highlights the analytic values of financial ratios and discusses the uses of Altman Z-score model in assessing the financial distress and predicting stock market performance of Indian realty sector. The panel regression procedure administered on the 10-year firm-specific data for the period of 2006–2015 demonstrates how the performance dimensions embedded into the distress prediction score forecast the future stock price behaviour. The findings of the study suggest that the analytic value inherent in Altman Z-score model has utility in both distress classifications and stock market predictions in Indian context. To be precise, the current Z-scores of realty firms carry sufficient information content that forewarns their stock market failures 2–5 years in advance. The results may provide a valuable guide to the investors of Indian realty firms in analysing financial failures and thereby can substantiate their investment decisions.