A Study on Bankruptcy Level of Software Companies in India
Journal Title: PARIPEX-Indian Journal of Research - Year 2015, Vol 4, Issue 10
Abstract
There are several issues that are utmost relevance with factors that affect the firm’s financial distress such as high leverage, cash shortage and risk management. Given that, in many cases, financial distress may lead to firm’s insolvency. Financial distress can be defined as a circumstance where a company cannot meet nor has difficulty in paying off its current financial obligations. Therefore, since it is difficult to them to predict financial distress, this paper provides a moderate attempt to understand the feasibility of using financial ratios, capital structure and Altman Z-score as an empirical approach to predict financial distress in future. The stakeholder theory of capital structure proposed by Titman (1984) argues that firms will take into account the nonfinancial stakeholders’ preferences when making capital structure decisions. In particular, firms selling specialized products will choose a lower leverage ratio. The study found that according to Altman Z score for top ten software companies in India for the year 2005 – 2014 are 2.827 that denotes that the companies risk is in low range. The companies are out of crisis zone and financially sound. There were no signs of the companies going bankrupt.
Authors and Affiliations
DR. KAVITHA SHANMUGAM, J. TAMILSELVI
Keywords
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