Insolvency prediction model of the company: the case of the Republic of Serbia

Abstract

In this article, the authors analyse the existing foreign insolvency prediction models of the company and on the basis of the sample of solvent and insolvent companies they aim to develop a new model to predict insolvency of a company by binomial logistic regression (LR), which will be suitable for the business environment in the Republic of Serbia. The research seeks to determine statistically most important financial ratios in predicting insolvency of Serbian companies. As a result of research, a model for the prediction of bankruptcy was created, which accurately classifies 82.9% of solvent ('healthy') Serbian companies and 93.3% of Serbian companies which have undergone bankruptcy proceedings (Serbian insolvent companies), while the average (total) accuracy of the prediction model is 88.4% of the cases. JEL CLASSIFICATIONSc38; c50; m21; G33 ARTICLE HISTORY

Insolvency and financial health prediction model for the listed companies on the Indonesia Stock Exchange

“…Corporate insolvency risk is the company's probability of becoming insolvent in the next 12 months (Baxter et al, 2007). Insolvency risk is a characteristic for all companies with no financial means to settle obligations to suppliers, shareholders, employees, creditors, government, and other entities (Obradović et al, 2018).…”

“…They provide a certain score as guidance whether the company is experiencing financial distress or not. Meanwhile, an insolvency prediction model that provides a certain number as guidance has not been found, e.g., the prediction made by Chung et al (2008) and Obradović et al (2018).…”

“…A researcher from Serbia developed an insolvency prediction model with predictors in the form of ratios related to liquidity, self-financing, and effectiveness (Obradović et al, 2018). However, the study did not include the equation and indicator scores of the worst insolvency levels and the company's state.…”

Comparison of the Results of a Data Envelopment Analysis Model and Logit Model in Assessing Business Financial Health

“…The second trend is to compare the estimation accuracy of individual prediction models [13,14]. Bankruptcy prediction models are used to detect early signals of significant bankruptcy risks and to identify companies facing potential bankruptcy [15]. The purpose of these models is to help businesses find out whether they are in danger of bankruptcy in the near future.…”

MDA financial distress prediction model for selected Balkan countries

“…Of course, even authors in the western part of the Balkan region are concerned with the issue of bankruptcy prediction models. For example, Jovanovic, Todorovic, Grbic (2017) and Simic, Kovacevic, Simic (2012), but also Obradovic et al (2018) have created prediction models for Serbian companies. The topic of identifying financial problems is also discussed for Croatian companies (Kundid, Ercegovac;Sarlija, Jeger, 2011;Pervan, Pavic, Pervan, 2014;Zikovic, 2018).…”