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Estimating SME’s risk of bankruptcy using stochastic methods: Romanian Development Regions

Author

Listed:
  • Mariana Bãlan

    (Institute for Economic Forecasting-NIER, Romanian Academy, Bucharest, Romania)

  • Raluca-Ioana Iorgulescu

    (Institute for Economic Forecasting-NIER, Romanian Academy, Bucharest, Romania)

Abstract

Nowadays, Romania has a functional market economy. Retrospective financial analysis is used to increase the profitability and value of an economic entity searching for sources of capital and an efficient allocation. This analysis requires certain financial methods and techniques to assess firm’s financial performance at a given moment. Economic theory has always been interested in developing methods to predict the risk of bankruptcy. One of the methods commonly used in current financial analysis is to determine the areas where the risk of bankruptcy is higher using the Score function. This paper presents the theory of the Score function method for financial analysis of an economic entity and then applies it for SMEs in Romanian development regions. The bankruptcy risk for some SMEs is approximated and the strengths and weaknesses of financial management in order to design new strategies are identified. Changes induced by the current economic and financial crisis may involve, when the probability is a priori, an exchange of the bankruptcy rate. The techniques presented and applied in this paper, allowed us, for each considered region, to obtain a general picture of the economic and financial situation of SMEs and allowed for a global diagnosis and a synthesis of their economic and financial situation.

Suggested Citation

  • Mariana Bãlan & Raluca-Ioana Iorgulescu, 2014. "Estimating SME’s risk of bankruptcy using stochastic methods: Romanian Development Regions," The Journal of Accounting and Management, Danubius University of Galati, issue 2, pages 37-43, August.
    • Handle: RePEc:dug:jaccma:y:2014:i:2:p:37-43
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    File URL: http://journals.univ-danubius.ro/index.php/jam/article/view/2682/2314
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    References listed on IDEAS

    as
    1. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    2. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
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