A Binary Model versus Discriminant Analysis Relating to Corporate Bankruptcies: The Case of Russian Construction Industry
The last market crash of 2008-2009 showed that the construction sphere is one of the most fragile spheres to the crisis effect. The destructive effect of this crash was resulted in substantial decrease in mortgage lending, price index, capital investment, and in growth of the cost level. As the construction industry remains strategically important, the eruption of this sphere, which was facilitated by the crisis, might considerably harm Russian economy as a whole. However, lack of relevant studies leaves the main risk factor of Russian construction firms’ failure unexplored. The purpose of this study is to reveal the key determinants, which cause bankruptcy of Russian construction firms during the crisis period. Moreover, the article provides testing of applicability of accounting-based models to prediction of bankruptcy of these firms. The results show the validity of binary-choice logit and probit specifications with the highest classification accuracy of around 85%. In addition, the liquidity and profitability ratios were defined as superior insolvency factors for four years before a company files for bankruptcy.