Financial traits of bankruptcy, empirical evidence from Bosnia and Herzegovina

Abstract

Bankruptcy prediction has been in the focus of research for many years. The benefits of bankruptcy predictive ability are several and possibly beneficial for all business entity stakeholders. This paper has an ultimate goal of revealing most significant financial traits of bankrupt companies as opposed to non-bankrupt companies. The research includes 50 bankrupt companies based in Federation of Bosnia and Herzegovina. They were matched with a random sample of 100 non-bankrupt company-years. Financial ratios of companies used in the sample were derived from their financial statements. Using logistic regression analysis and ANOVA, we were able to construct a several bankruptcy prediction models. The comprehensive model exhibited predictive ability of more than 95%, with high predictive ability of both bankrupt and non-bankrupt companies. The research has shown that bankrupt companies do leave significant financial traits that can be detected prior to official bankruptcy proceeding filing, which can be beneficial for all stakeholders.