The Effect of Bankruptcy Probability on Firm Value: An Empirical Study in the Borsa Istanbul Manufacturing Sector
1Seda Ağgül*, and Bora Topal**
Kafkas University, Kars, Türkiye*
Ardahan University, Ardahan, Türkiye**
Abstract: The aim of this study to investigate whether bankruptcy probability effective on firm value for manufacturing firms, which are centre of economic development and sustainable growth. The bankruptcy probability is a key strategic factor in determining importance of firms' market value. In this context, this study provides original evidence that the Z-score can be used in firm valuation processes beyond merely being an indicator that measuring the bankruptcy probability. In the study, data obtained from 98 manufacturing firms on the Borsa Istanbul (BIST) between 2003: Q1–2024: Q3 were analysed with panel data analysis methods. To measure bankruptcy probability the Altman Z-Score were used and Tobin’s Q and the return on assets ratio used for firm value. Firm size and financial leverage ratios were used as control variables in the study. The results show that Z-score has a positive and statistically significant effect in both models and firm size has a negative effect on Tobin's Q and a positive effect on return on assets, while the effect of financial leverage ratio on firm value and profitability is not statistically significant. According to the results obtained, it is seen that effective risk management has a positive effect on the market value and firm’s profitability and that firms with high Z scores are considered reliable and stable by investors because they have a lower bankruptcy probability and therefore this situation is directly reflected in the market value of firms.
Keywords: Bankruptcy, firm value, manufacturing sector.
