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Bankruptcy Prediction Based on the Autonomy Ratio

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  • Daniel Brîndescu Olariu

    (West University of Timisoara)

Abstract

The theory and practice of the financial ratio analysis suggest the existence of a negative correlation between the autonomy ratio and the bankruptcy risk. Previous studies conducted on a sample of companies from Timis County (largest county in Romania) confirm this hypothesis and recommend the autonomy ratio as a useful tool for measuring the bankruptcy risk two years in advance. The objective of the current research was to develop a methodology for measuring the bankruptcy risk that would be applicable for the companies from the Timis County (specific methodologies are considered necessary for each region). The target population consisted of all the companies from Timis County with annual sales of over 10,000 lei (aprox. 2,200 Euros). The research was performed over all the target population. The study has thus included 53,252 yearly financial statements from the period 2007 – 2010. The results of the study allow for the setting of benchmarks, as well as the configuration of a methodology of analysis. The proposed methodology cannot predict with perfect accuracy the state of the company, but it allows for a valuation of the risk level to which the company is subjected.

Suggested Citation

  • Daniel Brîndescu Olariu, 2016. "Bankruptcy Prediction Based on the Autonomy Ratio," EuroEconomica, Danubius University of Galati, issue 2(35), pages 78-92, November.
    • Handle: RePEc:dug:journl:y:2016:i:2:p:78-92
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    File URL: http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/3286/3690
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    References listed on IDEAS

    as
    1. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    2. Daniel BRÎNDESCU – OLARIU, 2014. "Labor Productivity As A Factor For Bankruptcy Prediction," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 6, pages 33-36, December.
    3. repec:agr:journl:v:5(582):y:2013:i:5(582):p:7-14 is not listed on IDEAS
    4. Daniel BRÎNDESCU – OLARIU, 2014. "The Correlation Between The Autonomy Ratio And The Return On Equity," Management Intercultural, Romanian Foundation for Business Intelligence, Editorial Department, issue 31, pages 407-414, November.
    5. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    6. Daniel BRÎNDESCU – OLARIU, 2016. "Multivariate Model For Corporate Bankruptcy Prediction In Romania," Network Intelligence Studies, Romanian Foundation for Business Intelligence, Editorial Department, issue 7, pages 69-83, June.
    7. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
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    Cited by:

    1. Antonio Pelaez-Verdet & Pilar Loscertales-Sanchez, 2021. "Key Ratios for Long-Term Prediction of Hotel Financial Distress and Corporate Default: Survival Analysis for an Economic Stagnation," Sustainability, MDPI, vol. 13(3), pages 1-17, January.

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