Testing the Predictive Power of Financial Failure Models Concerning the Stock Market Value (An Applied Study on the Real Estate Management and Development Sector Listed on the Saudi Stock Exchange)

Document Type : Original Article

Authors

1 Assistant Professor of Business Administration, Arab East Colleges

2 Master’s researcher at the Arab East Colleges

Abstract

The study aimed to test the predictive ability of quantitative models used for forecasting financial distress, specifically the Altman Zeta3 model, the Kida model, and the Sherrod model, by evaluating their relationship with the market value of the stocks of real estate management and development companies listed on the Saudi financial market. The study relied on secondary data sources, specifically the financial statements of companies in the real estate management and development sector listed on the stock market during the period from 2016 to 2023. A descriptive analytical approach was employed to achieve the study's objectives and address its issues.
The results showed that the three models were not significant in predicting the market value of stocks in the short term, indicating a low reliability for forecasting stock prices of companies in the short term. However, in the long term, the study's findings demonstrated that the Altman Zeta3 model had the highest predictive capability, attributed to its strong explanatory power and low error indicators.
The study recommends that companies in the real estate management and development sector adopt the Altman Zeta3 model for early detection of financial distress symptoms and to implement corrective measures before the situation worsens. Additionally, it suggests conducting future studies to test other quantitative models to determine their effectiveness in predicting stock prices in both the short and long term.

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