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An Analysis of the Effectiveness of Bankruptcy Prediction Models – an Industry Approach

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  • Pilch Bartłomiej

    (Cracow University of Economics, College of Economics, Finance and Law, Institute of Finance, 27 Rakowicka Street, 31-510 Cracow, Poland)

Abstract

Research background: Bankruptcy prediction models are frequently used in research. However, an industry approach is not often carried out. Due to this, this study included trends observable between the number of bankruptcies and its prediction by models. Purpose: The aim of the paper is to verify if changes in the number of actual bankruptcy in individual industries are properly predicted by the models. Also, if analyzed models are providing consistent information according to the risk of bankruptcy between industries. Research methodology: The data were collected from the Orbis database and the Coface reports. The period included in the study is 2014–2019. 5 Polish bankruptcy prediction models were used: these by D. Hadasik, E. Mączyńska and M. Zawadzki, M. Pogodzińska and S. Sojak, D. Wierzba and the Poznan one. Results: The analyzed models do not properly predict changes in the number of bankruptcy in individual industries, however, 3 out of 5 correctly predicted the trend for the entire sample. Analyzed models often provide inconsistent information. Hence, it seems sensible to use more than a few models in any further analyzes. Novelty: In the literature of the subject, there are often carried out analyses focused on the effectiveness of bankruptcy prediction models regarding individual companies. This research is focused on the prediction of changes in the number of companies to be considered as at bankruptcy risk between industries, and also on comparing these models.

Suggested Citation

  • Pilch Bartłomiej, 2021. "An Analysis of the Effectiveness of Bankruptcy Prediction Models – an Industry Approach," Folia Oeconomica Stetinensia, Sciendo, vol. 21(2), pages 76-96, December.
    • Handle: RePEc:vrs:foeste:v:21:y:2021:i:2:p:76-96:n:2
    DOI: 10.2478/foli-2021-0017
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Emin Zeytınoglu & Yasemin Deniz Akarım, 2013. "Financial Failure Prediction Using Financial Ratios: An Empirical Application on Istanbul Stock Exchange," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(3), pages 1-8.
    4. Wojciech Lichota, 2020. "The comparative analysis of the prediction effectiveness of selected discriminant analysis models," Zeszyty Naukowe Małopolskiej Wyższej Szkoły Ekonomicznej w Tarnowie / The Malopolska School of Economics in Tarnow Research Papers Collection, Malopolska School of Economics in Tarnow, vol. 48(4), pages 27-36, December.
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    More about this item

    Keywords

    financial ratios; sectors of the economy; discriminant analysis;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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