A Binary Model Versus Discriminant Analysis to Corporate Bankruptcies for Emerging Market

SSRN Working Papers. 2012.

Neretina E., Pirogov N., Makeeva E.

The problem of the firm bankruptcy prediction was investigated by foreign researchers in the 1930s and it still remains relevant. Since publishing of the major Altman’s work (1968), based on multiple discriminant analysis, this methodological area has been 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 been changed (Altman (1977)) methods and models should be renewed to be appropriate for the present day situation.

The purpose of this investigation is the revealing of factors causing bankruptcy and using models appropriate for prediction bankruptcy in the area of a construction industry during 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:

• non-optimal capital structure formation
• ineffective liquidity management
• decrease in assets profitability
• decrease in short-term assets turnover

The most reliable indicators, which give warning of bankruptcy ahead of others are financial instability and liquidity ratios.

Ключевые слова: bankruptcy prediction, construction industry, logit and probit analysis