Risk of Insolvency and Return of Shares: Empirical Analysis of Altman's Z-Score in the Peruvian Mining Sector between 2008 and 2018
| Autor | Edmundo R Lizarzaburu Bolaños - Kurt Burneo - Luis Berggrun |
| Cargo | The document had the collaboration of Diego Ezquivel. - PhD. Professor at Universidad Esan (Perú). Email: elizarzaburub@gmail.com - PhD. Centrum Católica Graduate Business School (ccgbs)/Pontificia Universidad Católica del Perú. - CESA Business School. Email: luis.berggrun@cesa.edu.co |
| Páginas | 1-34 |
ARTÍCULOS
Universidad & Empresa, Bogotá, Colombia 23(40): 1-34, enero-junio de 2021
1
Risk of Insolvency and
Return of Shares:
Empirical Analysis of
Altman’s Z-Score in
the Peruvian Mining Sector
between 2008 and 2018*
Edmundo R. Lizarzaburu**
Kurt Burneo***
Luis Berggrun****
Received date: 2019, December 11
Approved date: 2020, July 12
To cite this article: Lizarzaburu, E. R., Burneo, K., & Berggrun, L. (2021). Risk of
Insolvency and Return of Shares: Empirical Analysis of Altman’s Z-Score in the Peruvian
Mining Sector between 2008 and 2018. Revista Universidad & Empresa, 23(40), 1-34.
https://doi.org/10.12804/revistas.urosario.edu.co/empresa/a.8558
Abstract
This research pretends to evaluate the significance of the insolvency risk, referred by Altman’s Z-Score, in
the explanation of the historical return of the seven most liquid mining companies listed in the Lima Stock
Exchange (BVL) based on a Market Return Model (MRM) under a cross-sectional approach. In this sense,
daily data was collected from the S&P/BVL Peru Select index and the Peruvian 10-year Sovereign Bond
between 2008 and 2018, approximated quarterly by the geometric average to homogenize them with the
frequency of the Z. Thus, two central results were obtained: (1) The Z-Score, as an estimator of insolvency
*The document had the collaboration of Diego Ezquivel.
** PhD. Professor at Universidad Esan (Perú). Email: elizarzaburub@gmail.com
*** PhD. Centrum Católica Graduate Business School (CCGBS)/Ponticia Universidad Católica del Perú.
**** CESA Business School. Email: luis.berggrun@cesa.edu.co
2Universidad & Empresa, Bogotá, Colombia 23(40): 1-34, enero-junio de 2021
Risk of Insolvency and Return of Shares: Empirical Analysis of Altman’s Z-Score in the Peruvian Mining Sector Between 2008 and 2018
risk, is not valid to explain the behavior of the historical return of the shares, and (2) The Market Premium is
statistically significant within the yield analysis. Additionally, contrary to the common literature, the results suggest
the validity of Sharpe’s conventional CAPM.
Keywords: Financial distress; insolvency risk; Z-Score; historical stock performance; emerging
markets; mining sector.
Riesgo de insolvencia y devolución de acciones: análisis empírico de la
puntuación Z de Altman en el sector minero peruano entre 2008 y 2018
Resumen
Esta investigación pretendía evaluar la importancia del riesgo de insolvencia, referido por la puntuación Z de
Altman, en la explicación del rendimiento histórico de las siete empresas mineras más líquidas que cotizan en
la Bolsa de Valores de Lima (BVL) con base en un modelo de retorno de mercado bajo un enfoque transversal.
En este sentido, se recolectaron datos diarios del índice S&P/BVL Peru Select y del Bono Soberano Peruano a diez
años entre 2008 y 2018, aproximados trimestralmente por el promedio geométrico para homogeneizarlos con la
frecuencia de Z. Así, se obtuvieron dos resultados centrales: (1) el Z-Score, como estimador de riesgo de insolven-
cia, que no es válido para explicar el comportamiento de la rentabilidad histórica de las acciones, y (2) la prima
de mercado, que es estadísticamente significativa dentro del análisis de rentabilidad. Además, contrariamente a la
literatura común, los resultados sugieren la validez del CAPM convencional de Sharpe.
Palabras clave: problemas financieros; riesgo de insolvencia; puntuación Z; rendimiento
histórico de las acciones; mercados emergentes; sector minero.
Risco de inadimplência e devolução de ações: análise empírica da
pontuação Z de Altman no setor mineiro peruano entre 2008-2018
Resumo
Esta pesquisa pretende avaliar a importância do risco de inadimplência, calculado pela pontuação Z de Altman,
na explicação de rendimento histórico das 7 empresas mineiras mais proeminentes na bolsa de valores de Lima,
com base em um Modelo de Retorno de Mercado sobre um enfoque transversal. Neste sentido, coletaram-se
dados diários do indicador S&P/BVL Peru Select e do Bônus Soberano Peruano no período de 10 anos entre 2008-
2018, calculados trimestralmente pela média geométrica para homogeneizá-los com a frequência Z. Dessa forma,
obteve-se como resultados centrais: (1) o score Z, como estimativa de risco de inadimplência, que não é válido
para explicar o comportamento de rentabilidade histórica das ações, e (2) a taxa de mercado, que é estatisti-
camente significativa dentro da análise de rentabilidade. Adicionalmente, contrário ao descrito na literatura, os
resultados sugerem a validade do CAPM convencional de Sharpe.
Palavras-chave: problemas financeiros; risco de inadimplência; pontuação Z; rendimento
histórico das ações; mercados emergentes; setor mineiro.
3Universidad & Empresa, Bogotá, Colombia 23(40): 1-34, enero-junio de 2021
Edmundo R. Lizarzaburu, Kurt Burneo, Luis Berggrun
Introduction
At present, it is common to find in the literature the indiscriminate use of the concepts
financial stress and insolvency, which represent two different situations an entity could
cross, correlated through a unidirectional attainment link, which does not necessarily
imply sequentiality. In principle, firms that are able to face their obligations in the long
term, that is, in a sustained manner, are considered solvent (Altman, 2000). On the con-
trary, they are understood as insolvent to entities on bankruptcy proceedings or declared
bankrupt (Purnanandam, 2007). However, there are nuances between both extreme poles,
which depend on the financial position. In case this is precarious, the organization goes
through a period of stress; in the opposite scenario, it is concluded that it is healthy. In
this line, according to that, top management will make decisions, mostly linked to two
key indicators: (1) Profitability and (2) market share (Steinker et al., 2016).
In addition, knowledge of the probability of failure is not only useful for agents inside
a firm but also useful for external stakeholders, who are gradually affected by the firm’s
activities. To this, every investor creditor of an aliquot could estimate the level of return
he would expect for the acquisition of said assets, given the degree of risk assumed.
Naturally, to the extent that financing reflects adverse possibilities in greater proportion,
the expectations of return will be higher and vice versa (Sharpe, 1964). In addition, there
are “insured” return investments, which have no risk of non-payment or reinvestment. In
this regard, the difference between a return perceived as unequivocal and one with risk
is called the Market Premium (Equity Premium).
In this context, Altman (2000) proposed a regressive model that manages to estimate the
degree of solvency of a company, which he called Z-Score. It is widely disseminated and main-
tains a wide range of studies that corroborate its statistical significance (Jung & Han, 2017;
Legowik-Swiacik, 2017; Behera, 2016; Badea & Matei, 2016; Lizarzaburu, 2014; Al-Kassar &
Soileau, 2014; Kumari, 2013; Hayes et al., 2010). For the time being, it was corroborated that Z
does not demonstrate validity in companies belonging to the financial system (Bannigidadmath
& Narayan, 2016). In addition, as far as it was possible to explore, most of the works are applied
to entities located in economies of the first world, where the stock market is very developed,
and there are no sampling limitations. The main problems detected in extrapolation to emerging
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