Logit Analysis for Predicting the Bankruptcy of Albanian Retail Firms

The logit analysis is one of the more recent and advanced techniques, used in social sciences to model discrete results. The basis of this analysis is the theory of discrete choice. This theory has to do with the sense of discrete behavioral responses of individuals' actions and market economy the government when faced with two or more results. First, we have analyzed the theoretical and practical characteristics of the logit model and its application in various economic fields. Second, we have examined a sample of 30 retail firms who are active in the period 2010-2012 – 30 companies had had their shares permanently suspended or delisted because of a default. According to the characteristics of commercial businesses, in our study are taken into account many financial ratios, to be representative of the financial situation of these businesses. In this study, we concluded that from the 22 financial ratios taken in consideration only 8 are statistically important. As in many other studies carried out previously for the phenomenon of bankruptcy prediction was confirmed that the financial statements received from the financial statements of businesses serve to forecast this phenomenon. Logit analysis recorded an improvement in the reliability and accuracy of forecasting the phenomenon of bankruptcy compared with multivariate discriminatory analysis. Logit analysis is more reliable because it requires the assumption of normal distribution of variables, which is one of the basic assumptions of the multivariate discriminatory analysis.