FAILURE PREDICTION FROM THE INVESTORS’ VIEW BY USING FINANCIAL RATIOS. LESSON FROM ROMANIA
The economy’s globalization which culminated with the global ﬁnancial crisis that erupted in 2007 has affected the economies around the world demonstrating that the results of research studies on bankruptcy risk prediction are insufﬁcient. Furthermore, the studies conducted so far do not provide direct insight into the capital market to investors for whom the ﬁrst step in a company’s failure is manifested by delisting the company from the stock exchange.
Jméno a příjmení autora:
Monica Violeta Achim, Sorin Nicolae Borlea, Lucian Vasile Găban
Delisting, failure prediction, ﬁnancial ratios, Logit model
DOI (& full text):
The purpose of our study is to identify which ﬁnancial indicators have a signiﬁcant impact on the probability of Romanian companies’ bankruptcy risk from the investors’ point of view by studying the…více
The purpose of our study is to identify which ﬁnancial indicators have a signiﬁcant impact on the probability of Romanian companies’ bankruptcy risk from the investors’ point of view by studying the impact on the probability of shares delisting from the stock exchange. The research is conducted on a sample of 16 failed and 21 non-failed non-ﬁnancial companies listed on the Bucharest Stock Exchange between 2002 and 2012.
The Logit analysis is used for identifying the variables that are signiﬁcant and have predictive power on distress likelihood. By using 12 main ﬁnancial ratios, we estimate three alternative Logit models for determining their signs, signiﬁcance, predictivepower, efﬁciency of ﬁt tests. The ﬁrst model provides the highest explanatory power. Three variables such as Flexibility ratio (FLEX), Assets turnover (ASTU) and Current assets turnover (CASTU) are found to be signiﬁcant determinants for stock exchange delisting. These three variables provide 52.59% of correct prediction of bankruptcy risk. The percentage for correctly classiﬁed observations for the ﬁtted Logit model is of 83.33%.
Moreover, this research attempts to reveal the changes that may appear among bankruptcy predictors given that the bankruptcy risk model is developed from the investors’ point of view and not from that of a simple decision-making person. For a stock market investor, bankruptcy already starts at the stage of delisting the company because the investment was strongly compromised, whether or it continues its activity or not. Orientation towards investors when predicting bankruptcy risk is the main element of originality that our research adds to the scientiﬁc achievements in bankruptcy, until this moment.