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Regular version of the site

Article

The Prediction of Bankruptcy in a Construction Industry of Russian Federation

Journal of Modern Accounting and Auditing. 2013. Vol. 9. No. 2. P. 256-271.
Makeeva E., Neretina E.

The problem of the firm bankruptcy prediction was investigated by foreign researchers in the 1930s and it still remains relevant. Since the publishing of Altman’s (1968) major work, based on multiple discriminant analysis (MDA), this methodological area has considerably changed. Taking into consideration that new data have appeared in the course of time, companies’ average size has changed, and the accounting standards have changed (Altman, Haldeman, & Narayanan, 1977), methods and models should be renewed so as to be appropriate for current situation. The purpose of this paper is to reveal factors causing bankruptcy and use models appropriate for prediction bankruptcy in the area of a construction industry during the financial crisis. This investigation has been carried out on the basis of logit and probit analysis. The main reasons of bankruptcy revealed in the course of this investigation are the following: (1) non-optimal capital structure formation; (2) ineffective liquidity management; (3) decrease in assets profitability; and (4) decrease in short-term assets turnover. The most reliable indicators which give warning of bankruptcy ahead of others are financial instability and liquidity ratios.