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Statistical and Mathematical Methods to Predict the Risk of Bankruptcy

Author

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  • Mariana Balan

    () ("Dimitrie Cantemir" Christian University)

Abstract

Observing revealing criteria regarding the difficulties faced by economic entities show a great diversity of situations and exceptions that occur both at the level of “bankrupt” firms and of those viable. In economic theory, interest exists to develop methods for bankruptcy risk prediction starting from rates correlated with the state of "health" or "weakness" of those economic entities. Score appears as a linear function of several variables (rates) characterized by average coefficients, which are determined, most often, using the least squares method applied to observations associated to representative units grouped from the beginning as “non-bankrupt” and “bankrupt”. The Score Function is very sensitive to all the significant changes of the economic situation and draws an alarm signal on its economic and financial state offering also a higher quality ability to make a forecast.

Suggested Citation

  • Mariana Balan, 2013. "Statistical and Mathematical Methods to Predict the Risk of Bankruptcy," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(4), pages 15-20, December.
  • Handle: RePEc:khe:journl:v:5:y:2013:i:4:p:15-20
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    More about this item

    Keywords

    Score function; risk of bankruptcy; scale analysis; discriminant statistical technique;

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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