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Assessing Potential Financial Problems for Firms in Brazil

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  • Edward I Altman

    (New York University)

  • Tara K N Baidya

    (Catholic University of Rio de Janeiro)

  • Luis Manoel Ribeiro Dias

    (Catholic University of Rio de Janeiro)

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    Abstract

    This paper examines the recent business failure experience in Brazil and develops, tests and analyzes a quantitative model for classifying and predicting serious financial problems of companies. It utilizes a bankruptcy classification model developed by Altman (1968) in order to classify Brazilian firms during the period 1973 to 1976. A sample of 23 serious–problem firms is compared with a slightly larger control sample of healthy firms. A four–variable model successfully classified 88 percent of the firms one year prior to serious problems and as much as 78 percent three years prior. The importance of models that highlight financial problems early enough to suggest remedial changes is apparent in Brazil. For example an equilibrium situation between the domestic private sector, multinationals and public–owned firms is more likely to continue if weaker domestic firms can be helped and preserved. The application of such models by financial institutions and for financial market analysis is comparable to that in the United States and other developed countries. Finally, the paper explores the application of such models in developing countries.© 1979 JIBS. Journal of International Business Studies (1979) 10, 9–24

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 10 (1979)
    Issue (Month): 2 (June)
    Pages: 9-24

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    Handle: RePEc:pal:jintbs:v:10:y:1979:i:2:p:9-24

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    Cited by:
    1. Caro, Norma Patricia & Díaz, Margarita & Porporato, Marcela, 2013. "Predicción de quiebras empresariales en economías emergentes: uso de un modelo logístico mixto || Bankruptcy Prediction in Emerging Economies: Use of a Mixed Logistic Model," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 16(1), pages 200-215, December.
    2. Becchetti, Leonardo & Sierra, Jaime, 2003. "Bankruptcy risk and productive efficiency in manufacturing firms," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2099-2120, November.
    3. André Luiz de Souza Guimarães & Valcemiro Nossa, 2010. "Working capital, profitability, liquidity and solvency of healthcare insurance companies," Brazilian Business Review, Fucape Business School, vol. 7(2), pages 37-59, May.
    4. Leonardo Becchetti & Annalisa Castelli & Iftekhar Hasan, 2010. "Investment–cash flow sensitivities, credit rationing and financing constraints in small and medium-sized firms," Small Business Economics, Springer, vol. 35(4), pages 467-497, November.
    5. Katia Rocha & Francisco A. Alcaraz Garcia, 2005. "Do Ranking das Distribuidoras ao risco de Crédito no Pool- A remuneração dos Investimentos em Geração Elétrica no Brasil," Discussion Papers 1086, Instituto de Pesquisa Econômica Aplicada - IPEA.
    6. Korol, Tomasz, 2013. "Early warning models against bankruptcy risk for Central European and Latin American enterprises," Economic Modelling, Elsevier, vol. 31(C), pages 22-30.

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