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Bankruptcy Prediction Models in Galician companies. Application of Parametric Methodologies and Artificial Intelligence

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  • Pablo de Llano Monelos
  • Manuel Rodríguez López
  • Carlos Piñeiro Sánchez

Abstract

This paper provides empirical evidence on the prediction of non-financial companies’ failure. We develop several models to evaluate failure risk in companies from Galicia. We check the predictive ability of parametric models (multivariate discriminant, logit) compared with auditor’s report. Models are based on relevant financial variables and ratios, in financial logic and a in financial distress situations. We examine a random sample of companies in cross-sectional perspective, checking the predictive capacity at any given time, also verifying is models give reliable signals to anticipate future events of financial distress. Findings suggest that our models are extremely effective when applied in medium and long term, and that they offer higher predictive capabilities than external audit.

Suggested Citation

  • Pablo de Llano Monelos & Manuel Rodríguez López & Carlos Piñeiro Sánchez, 2013. "Bankruptcy Prediction Models in Galician companies. Application of Parametric Methodologies and Artificial Intelligence," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 117-136.
    • Handle: RePEc:ers:ijebaa:v:i:y:2013:i:1:p:117-136
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    References listed on IDEAS

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    More about this item

    Keywords

    Business Failure; Financial Distress; Prediction of Insolvency; Audit Reports;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other

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