Abstract
Logit and discriminant analyses have been used for corporate bankruptcy prediction in several studies since the last century. In recent years there have been dozens of studies comparing the several models available, including the ones mentioned above and also probit, artificial neural networks, support vector machines, among others. For the first time for Colombia, this paper presents a comparative analysis of the effectiveness of several models predicting corporate bankruptcy. Such models have previously been mostly used in relation to European and North American markets, whereas here they are applied to the financial ratios of three firms located in Colombia. The main objective is to corroborate the validity of these models in terms of their ability to predict firm failure in the Latin American context, specifically for two bankrupt Colombian firms and one healthy one. The analysis is conducted using bankruptcy forecasting models widely proposed in the literature and used systematically in developed countries: the multiple discriminant analysis Z-Altman model, Korol’s two-function model and Prusak’s P2 model. In addition, the logit and decision tree models developed by T. Korol are tested.
Highlights
It is possible to predict the chance of a firm failing with a high extent degree of accuracy using its financial information
The aim of this paper is to analyse three Colombian companies in the same industry using their financial ratios to compare the performance of five models predicting corporate bankruptcy
This is done after a review of the currently available literature on financial ratios and bankruptcy prediction models, collecting and processing data and making use of excel spreadsheets to calculate, tabulate and graphically plot the outcomes of the models
Summary
It is possible to predict the chance of a firm failing with a high extent degree of accuracy using its financial information. External causes of failure such as an economic downturn or the financial crisis that happened back in 2008 can affect both stable and underperforming companies. The aim of this paper is to analyse three Colombian companies in the same industry using their financial ratios to compare the performance of five models predicting corporate bankruptcy. The financial ratios are calculated on the basis of income statements and balance sheets. This is done after a review of the currently available literature on financial ratios and bankruptcy prediction models, collecting and processing data and making use of excel spreadsheets to calculate, tabulate and graphically plot the outcomes of the models
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.