An Assessment of the Contribution of the Factors Included in Altman’s Z Formula to the Discriminant Functions Associated with Corporate Efficiency

Ahmed A. Al-Qatamin&Hayel Y. Al-Fakhoury

Abstract

The objective of this research was to conduct an assessment of the contribution of the factors included in Altman’s Z- factor formula to the discriminant functions associated with corporate efficiency in a sample of firms from insurance industry in Jordan. Sampled firms were grouped into two groups based on ROI to allow for the use of Multiple Discriminant Analysis (MDA) as s statistical tool for data analysis. Results indicated that, X1 (WorkingCapital/Total Assets) dominated both functions and ranked number oneĀ  with massive contribution (Two third of total contribution) followed by X3 (Operating Expenses/ Total Assets) as number two and therefore, according to the results of this study both factors can be considered as having the highest contribution to corporate efficiency. Other remaining three factors showed moderate to weak but not significant contribution.