Predictive potential and risks of selected bankruptcy prediction models in the Slovak business environment

Abstract

In our study, we focused on the assessment of four bankruptcy prediction models, to figure out which model is most appropriate in the conditions of the Slovak business environment. Based on the previous research within the Slovak conditions, we set a portfolio of 4 models to be assessed: Altman model (1984), Ohlson model (1980), indexes IN01 and IN05 that were validated on the sample of 700 Slovak companies. Based on previous studies we expected that IN indexes are superior to Ohlson and Altman model. The excellency of our research lies in validation and assessing the accuracy of bankruptcy prediction models at three levels: the overall accuracy, accuracy of the bankruptcy prediction, and the non-bankruptcy prediction accuracy. This analytical structure enables to look at the topic more complexly and to increase the objectification of accuracy of analysed models. Based on the results, we showed that Ohlson model is not applicable to predict bankruptcy in the Slovak conditions as reached the lowest bankruptcy prediction ability even if has high non bankruptcy prediction ability. On the other hand, we have confirmed our expectation about the bankruptcy prediction ability of index IN05, that is proven to be superior to Ohlson and Altman model and so is the most appropriate model for Slovak business environment.

Keywords:

• bankruptcy
• prediction models
• bankruptcy and non-bankruptcy prediction accuracy
• validation of prediction models
• Altman model
• Ohlson model
• IN indices

JEL Classification:

• G33
• C10
• C30

Additional information

Notes on contributors

Beata Gavurova

Beata GAVUROVA. PhD, MBA is an expert in finance, financial analysis and financial risk management. She focuses in her research work on issues of measurement and performance management in various sectors, process management and process optimization, strategic and performance benchmarking. Her dominant research area is the development and testing in management and performance measurement, evaluation of methodologies and preparing of application platform for innovative management and performance measurement with the support of ICT.

Miroslava Packova

Miroslava PACKOVA. PhD focuses in her research especially on bankruptcy prediction, financial health of companies, public procurement and assessment of efficiency. She participates in research European projects devoted to ICT implementation into processes such as procurement or measurement of efficiency.

Maria Misankova

Maria MISANKOVA. PhD works as a lecturer at the Department of Economics at the Faculty of Operation and Economics of Transport and Communications od the University of Zilina. She focuses in her research especially on bankruptcy prediction and financial health of companies, credit risk management, financial markets, financial and strategic management. She has participated in four research projects dedicated to the issues of her interest.

Lubos Smrcka

Lubos SMRCKA. CSc works as a Senior Lecturer in the Department of Business Economics at the Faculty of Business Administration of the University of Economics in Prague. He deals with a risk management, personal and family finances and insolvency. Gradually, he acquired several professional specializations: tax advisor, broker, forensic expert in economy, prices, and valuation specialized in the valuation of securities, RM-S and stock exchange and business valuation, and administrator in insolvency.