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Prediction Ability of Selected Bankruptcy Models in the Period of Structural Changes

In: Advances in Cross-Section Data Methods in Applied Economic Research

Author

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  • Tomáš Pražák

    (Silesian University in Opava)

Abstract

Determining the financial stability of a business is a fundamental starting point for deciding on the evaluation of business strategies. A financially sound business is able to generate added value regularly during its business. Conversely, businesses in financial distress can negatively affect the country’s economic development. The aim of this paper was to evaluate the predictive ability of selected bankruptcy models in the period of structural changes between 2004 and 2016 in the Visegrad countries. Bankruptcy prediction models such as Altman’s bankruptcy model, Index IN05, and Taffler’s bankruptcy model were used to meet the objective of the paper. Furthermore, econometric-statistical methods. The predictive capability results show that the Altman’s model achieved the highest average abilities, which proved more than 70% of businesses to rank the company financially weak. On the other hand, the sensitivity analysis showed that the IN05 index was the most stable model. Taffler’s model has proved to be the least suitable for practical use on businesses in the Visegrad countries.

Suggested Citation

  • Tomáš Pražák, 2020. "Prediction Ability of Selected Bankruptcy Models in the Period of Structural Changes," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Cross-Section Data Methods in Applied Economic Research, chapter 0, pages 385-399, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-38253-7_24
    DOI: 10.1007/978-3-030-38253-7_24
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