PREDICTING FINANCIAL DISTRESS OF NIGERIAN ELECTRICITY DISTRIBUTION COMPANIES USING THE ALTMAN Z-SCORE MODEL

Abstract The study examines the prediction of financial distress of Nigerian electricity distribution companies using the Altman Z-score model. Ex post facto research design was adopted for the study to assess the effectiveness and adequacy of the independent variables( working capital to total assets, retained earnings to total assets, earnings before interest and tax to total assets, market value of book value of equity to total liabilities and sales to total assets) of the Altman Z-Score model in influencing the Z-score result, regardless of the direction it is skewed, is a determinant of whether a firm could be classified as being engaged in fraudulent financial statement practices or not. Centred on the Nigerian Electricity Distribution Companies (DisCos), the study's sample comprises the financial statements of the 11 successor companies for the period from 2013 to 2023, available on their respective websites. A panel regression model was used to test the hypotheses, as the findings indicated that the Altman Z-score model could effectively predict financial failure among the Nigerian Electricity Distribution Companies (DisCos). Additionally, the model shows a significant relationship between the Altman Z-score and the model's independent variables, and between these variables and the prediction of failures of the Nigerian Electricity Distribution Companies (DisCos). In conclusion, the study proved that the Altman Z-score model could reliably and efficiently predict and detect financial distress in organisations and recommended its use to future-proof DisCos' operational efficiency and survival prospects. Given its limitations, stakeholders could make more informed decisions and take proactive measures to mitigate financial distress.