Abstract
The aim of this article is to analyze and evaluate the usability of discriminant models in predicting bankruptcy for companies listed on NewConnect. This market was established in 2007 and operates as an alternative trading system next to Warsaw Stock Exchange S.A., which in practice means that its regulatory regime in relation to issuers and listed companies is not as strict as the one applicable to the main market, therefore shares of small and medium-size businesses, including start-ups, can be listed on NewConnect. In this paper, discriminant models are used to analyse the financial situation of four companies removed from trading on NewConnect due to bankruptcy, Perfect Line S.A., Promet S.A., InwazjaPC S.A. and Budostal-5 S.A. The analysis is based on three models: Altman's model for emerging markets, as well as two models of the highest predictive ability according to P. Antonowicz's research, Z7INEPAN model developed in the Polish Academy of Sciences and E. Mączyńska's model, developed by Polish scientists and adapted to the Polish economy. The results confirm that these models are a valuable tool in assessing the financial condition of enterprises and allow for bankruptcy forecasting. Their application to companies listed on NewConnect, however, may be limited due to the specific profile of these entities as most of these enterprises are in fact newly formed and therefore the existing empirical data may prove insufficient.
Highlights
NewConnect (NC) is a market intended for equity securities trading
The aim of this study is to evaluate the usability of early warning models in analysing the financial condition of companies listed in the alternative trading system
Neither Altman's model nor the model developed by researchers at the Polish Academy of Sciences forecast the bankruptcy within two years and the year before its declaration
Summary
NewConnect (NC) is a market intended for equity securities trading. It was organized by Warsaw Stock Exchange and functions as an alternative trading system next to the main market. A specialised nature of NewConnect provides access for entities unable to meet the conditions set for issuers in the primary market It allows for IPO by small companies, including start-ups, with no experience or history and conducting business primarily based on intangible assets. The first Altman's model ( called the Z-score model or indicator) was published in 1968 It is based on the discriminant analysis carried out on the basis of the financial statements of 66 companies, including 33 companies in good financial condition, and 33 at risk of bankruptcy. Z-score may be used to analyze the non-public entities Another modification in 1990 was to exclude the revenues from sales/total assets variable, which at the same time affected the function parameters. Interpretation of results ܼ > 2,99 no probability of failure 1,81 ≤ ܼ ≤ 2,99 gray zone ܼ < 1,81 likelihood of bankruptcy is high >ܵܯܧ2,6 no probability of failure 1,1 ≤ ≤ ܵܯܧ2,6 gray zone < ܵܯܧ1,1 likelihood of bankruptcy is high ܼீௌ > 0,45 no probability of failure ܼீௌ ≤ 0,45 likelihood of bankruptcy is high
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