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Article
Publication date: 2 March 2015

Martin Aruldoss, Miranda Lakshmi Travis and V. Prasanna Venkatesan

Bankruptcy is a financial failure of a business or an organization. Different kinds of bankruptcy prediction techniques are proposed to predict it. But, they are…

1922

Abstract

Purpose

Bankruptcy is a financial failure of a business or an organization. Different kinds of bankruptcy prediction techniques are proposed to predict it. But, they are restricted as techniques in predicting the bankruptcy and not addressing the associated activities like acquiring the suitable data and delivering the results to the user after processing it. This situation demands to look for a comprehensive solution for predicting bankruptcy with intelligence. The paper aims to discuss these issues.

Design/methodology/approach

To model Business Intelligence (BI) solution for BP the concept of reference model is used. A Reference Model for Business Intelligence to Predict Bankruptcy (RMBIPB) is designed by applying unit operations as hierarchical structure with abstract components. The layers of RMBIPB are constructed from the hierarchical structure of the model and the components, which are part of the reference model. In this model, each layer is designed based on the functional requirements of the Business Intelligence System (BIS).

Findings

This reference model exhibits the non functional software qualities intended for the appropriate unit operations. It has flexible design in which techniques are selected with minimal effort to conduct the bankruptcy prediction. The same reference model for another domain can be implemented with different kinds of techniques for bankruptcy prediction.

Research limitations/implications

This model is designed using unit operations and the software qualities exhibited by RMBIPB are limited by unit operations. The data set which is applied in RMBIPB is limited to Indian banks.

Originality/value

A comprehensive bankruptcy prediction model using BI with customized reporting.

Book part
Publication date: 10 November 2020

Sarah Sobhy Mohamed

This chapter aims at examining financial distress issue by designing a comprehensive model to explain and predict financial distress in Egypt. This comprehensive model

Abstract

This chapter aims at examining financial distress issue by designing a comprehensive model to explain and predict financial distress in Egypt. This comprehensive model incorporates accounting ratios, market-based ratios and macroeconomic ratios. The sample of the existing research includes all the listed firms in two main sectors: basic resources and chemicals. Using logistic regression model, the results showed that adding market ratios and macroeconomic ratios enhances the predictability of the model and accounting information are not sufficient to explain financial distress.

Details

Financial Issues in Emerging Economies: Special Issue Including Selected Papers from II International Conference on Economics and Finance, 2019, Bengaluru, India
Type: Book
ISBN: 978-1-83867-960-6

Keywords

Article
Publication date: 1 January 2006

M. Adnan Aziz and Humayon A. Dar

The incidence of important bankruptcy cases has led to a growing interest in corporate bankruptcy prediction models since the 1960s. Several past reviews of this

7211

Abstract

Purpose

The incidence of important bankruptcy cases has led to a growing interest in corporate bankruptcy prediction models since the 1960s. Several past reviews of this literature are now either out‐of‐date or too narrowly focused. They do not provide a complete comparison of the many different approaches towards bankruptcy prediction and have also failed to provide a solution to the problem of model choice in empirical application. Seeks to address this issue.

Design/methodology/approach

Through an extensive literature review, this study provides a comprehensive analysis of the methodologies and empirical findings from these models in their applications across ten different countries.

Findings

The predictive accuracies of different models seem to be generally comparable, although artificially intelligent expert system models perform marginally better than statistical and theoretical models. Individually, the use of multiple discriminant analysis (MDA) and logit models dominates the research. Given that financial ratios have been dominant in most research to date, it may be worthwhile increasing the variety of explanatory variables to include corporate governance structures and management practices while developing the research model. Similarly, evidence from past research suggests that small sample size, in such studies, should not impede future research but it may lead researchers away from methodologies where large samples are critically necessary.

Originality/value

It is hoped that this study will be the most comprehensive to‐date review of the literature in the field. The study also provides a unique ranking system, the first ever of its kind, to solve the problem of model choice in empirical application of bankruptcy prediction models.

Details

Corporate Governance: The international journal of business in society, vol. 6 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Book part
Publication date: 8 August 2022

Naila Aliyeva, Sergei Chernov, Liudmila Babaskina and Mariya Zakharova

The purpose of this chapter was to develop a framework for comprehensive business diagnostics, which can be integrated into the management of small and medium-sized businesses.

Abstract

Purpose

The purpose of this chapter was to develop a framework for comprehensive business diagnostics, which can be integrated into the management of small and medium-sized businesses.

Design/Methodology/Approach

The chapter proposes a multiloop model of comprehensive business diagnostics, which provides the company with timely and objective information about the dynamics of its key performance indicators. The model allows enterprises of the real sector to optimize the information acquiring process with the help of the express diagnostics indicators and ensure the high quality and efficiency of the obtained information. Testing of the multiloop model at the Pavlovo Posad Shawl Manufactory JSC involved three stages: express diagnostics (ED), general diagnostics (GD), and comprehensive diagnostics (CD).

Findings

The results determined the need to move to the comprehensive diagnostics (CD) loop of the model. The approbation of the suggested model at the shawl manufacture, particularly the CD loop, allowed the authors to identify the key factors influencing the company's main economic and financial indicators.

Practical Implications

The proposed multiloop model can be used at enterprises with different forms of ownership, including small and medium-sized businesses, both in Russia and abroad.

Social Implications

A multiloop model of comprehensive business diagnostics provides managerial staff with qualitative real-time information that helps them make informed and effective management decisions.

Originality

The proposed multiloop model allows businesses to acquire data about the dynamics of key indicators, determine the factors' impacts on key financial and economic indicators, and ensure high efficiency of management decisions with minimal cost.

Article
Publication date: 5 December 2016

Donald D. Hackney, Daniel Friesner and Erica H. Johnson

Medical bankruptcies occur when an individual experiences an acute or chronic health event, and the costs of care exceed the individual’s ability to pay. In such cases…

Abstract

Purpose

Medical bankruptcies occur when an individual experiences an acute or chronic health event, and the costs of care exceed the individual’s ability to pay. In such cases, the individual typically files for bankruptcy. There is an extensive literature that estimates the prevalence of medical bankruptcy, but studies either select a population whose medical care is extremely expensive or chooses ad hoc thresholds for medical bankruptcy categorizations. In both cases, the prevalence of medical bankruptcy is biased. The purpose of this paper is to estimate the actual prevalence of medical bankruptcies in a manner that avoids these limitations.

Design/methodology/approach

Data are randomly drawn from a single US Bankruptcy Court district. Following the literature, an ad hoc threshold of medical debts which places the bankruptcy filer “at risk” for a medical bankruptcy is postulated. Misclassification analyses are used to estimate the likelihood of a medical bankruptcy filing while adjusting for the use of ad hoc thresholds.

Findings

The naive prevalence of medical bankruptcy is 23.1 percent, but exceeds 50 percent when accounting for misclassification. Many individuals are “ostensibly” medically bankrupt. They are already seriously indebted, and any outside financial shock, including but not limited to medical bills, can push these debtors into insolvency.

Originality/value

Bankruptcy is an important social safety net. An improved understanding of the types and magnitudes of medical debts which precipitate a bankruptcy filing can lead to policies that improve outcomes for bankruptcy filers and reduce the social costs of bankruptcy.

Details

International Journal of Social Economics, vol. 43 no. 12
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 5 April 2013

Surenderrao Komera and P.J. Jijo Lukose

The purpose of this paper is to empirically investigate the stock return and operating performance of the firms which emerged from bankruptcy during 1992‐2006 in India.

Abstract

Purpose

The purpose of this paper is to empirically investigate the stock return and operating performance of the firms which emerged from bankruptcy during 1992‐2006 in India.

Design/methodology/approach

The paper uses single factor model and matching firm approach to assess the stock return performance. It employs the level as well as change expectation models to examine the operating performance.

Findings

The paper shows that the sample firms, after emerging from bankruptcy, report declining stock return as well as operating performance.

Practical implications

Findings of the study raise doubts over the efficiency of Indian corporate bankruptcy reorganizing mechanism.

Originality/value

Apparently, no previous study examined the post‐bankruptcy performance of the firms, particularly in the context of emerging markets, which are plagued with the principal agent problems aggravated by owner managers. Given the potential vulnerability of the bankruptcy process for the inefficient wealth transfers among various claim holders, this paper provides useful insights into the same.

Details

International Journal of Emerging Markets, vol. 8 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 1 March 2005

Patti Cybinski and Carolyn Windsor

Conflicting results have emerged from several past studies as to whether bankruptcy prediction models are able to forecast corporate failure more accurately than auditors…

Abstract

Conflicting results have emerged from several past studies as to whether bankruptcy prediction models are able to forecast corporate failure more accurately than auditors’ going‐concern opinions. Nevertheless, the last decade has seen improved modelling of the path‐to‐failure of financially distressed firms over earlier static models of bankruptcy. In the light of the current crisis facing the auditing profession, this study evaluates the efficacy of auditors’ going‐concern opinions in comparison to two bankruptcy prediction models. Bankrupt firms in the U.S. service and trade industry sectors were used to compare model predictions against the auditors’ going‐concern opinion for two years prior to firm failure. The two models are the well‐known Altman (1968) Multiple Discriminant Analysis (MDA) model that includes only financial ratio variables in its formulation and the newer, temporal logit model of Cybinski (2000, 2003) that includes explicit factors of the business cycles in addition to variables internal to the firm. The results show overall better bankruptcy classification rates for the temporal model than for the Altman model or audit opinion.

Details

Pacific Accounting Review, vol. 17 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 1 April 2014

Raul Seppa

Small privately held firms extensively use debt provided by principal owners and households (inside-debt) as an alternative capital source to straight equity capital. The…

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Abstract

Purpose

Small privately held firms extensively use debt provided by principal owners and households (inside-debt) as an alternative capital source to straight equity capital. The purpose of the research study is to investigate inside-debt-bankruptcy relations.

Design/methodology/approach

Inside-debt-bankruptcy relation is tested on three prominent bankruptcy prediction models using correlation and logit regression analysis. Sample consists of 314 Estonian small firms. Financial reports of 2007 are modelled against bankruptcies declared in 2009.

Findings

Results imply that users of inside-debt are less profitable; they have weaker liquidity position and less retained earnings. Leverage is not found to be significant determinant between inside-debt users and non-users. Fundamental finding of the study suggests that the use of inside-debt is significantly and positively related to bankruptcy probability. While inside-debt carries no risk elements per se, findings are robust to indicate that the use of inside-debt has significant power to signal for increasing bankruptcy risk and as such, reducing information asymmetry of small firms.

Research limitations/implications

This study is limited to single country data. Bankruptcy data fall to the period of economical recession. It is suggested to repeat the study in a normal economical situation and to extend sample size over different countries.

Practical implications

Findings contribute to the understanding of firms' financial risk, firm behaviour and capital structure development. In a lending industry, results shall supplement to prudent credit risk assessment techniques and design of bankruptcy models in general.

Originality/value

To the author's best knowledge, inside-debt-bankruptcy relation is not studied so far in the existing academic literature.

Details

Baltic Journal of Management, vol. 9 no. 2
Type: Research Article
ISSN: 1746-5265

Keywords

Article
Publication date: 18 October 2018

Fraz Inam, Aneeq Inam, Muhammad Abbas Mian, Adnan Ahmed Sheikh and Hayat Muhammad Awan

Considering the economic dimension of sustainability, the purpose of this paper is to analyze the risk of bankruptcy in the Pakistani firms of the non-financial sector…

1202

Abstract

Purpose

Considering the economic dimension of sustainability, the purpose of this paper is to analyze the risk of bankruptcy in the Pakistani firms of the non-financial sector from years 1995 to 2017.

Design/methodology/approach

Three techniques were used which include multivariate discriminant analysis (MDA), logit regression and multilayer perceptron artificial neural networks. The accounting data of firms were selected one year before the bankruptcy.

Findings

Findings were obtained by comparing and analyzing the methods which show that neural networks model outperforms in the prediction of bankruptcy. They further conclude that profitability and leverage indicators have the power of discrimination in bankruptcy prediction and the best variables to predict financial distress are also found and indicated.

Practical implications

Practically, this study may help the firms to better anticipate the risks of getting bankrupt by choosing the right method and to make effective decision making for organizational sustainability.

Originality/value

Three different techniques were used in this research to predict the bankruptcy of non-financial sector in Pakistan to make an effective prediction.

Details

Journal of Economic and Administrative Sciences, vol. 35 no. 3
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 8 February 2016

Loredana Cultrera and Xavier Brédart

The aim of this paper is to develop a bankruptcy prediction model for the Belgian small- and medium-sized enterprises (SMEs) through the building of a logit model that…

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Abstract

Purpose

The aim of this paper is to develop a bankruptcy prediction model for the Belgian small- and medium-sized enterprises (SMEs) through the building of a logit model that includes a selection of financial ratios.

Design/methodology/approach

Using a sample of 7,152 Belgian SMEs among which 3,576 were declared bankrupt between 2002 and 2012, the model, which includes control variables such as firm size and age, aims to test the predictive power of ratios reflecting the financial structure, the profitability, the solvency and the liquidity of firms.

Findings

The results report a satisfactory prediction accuracy and show that ratios as profitability and liquidity are excellent predictors of bankruptcy for Belgian SMEs.

Research limitations/implications

Although the results seem to be conclusive, it could be noted that the healthy sample was not paired with the bankrupt sample. Other studies show that the use of paired samples makes it possible to increase the already good prediction rate. Also, further research could focus on intra-sectorial analysis.

Practical implications

Beside its contribution to the academic literature on bankruptcy prediction of Belgian SMEs, this study may be of interest for investors or managers to help them to anticipate bankruptcy risks. It can also be useful for banks and other credit institutions in the assessment of credit risk of firms. Thanks to such models, they could better identify firms with a higher risk of failure in their lending decisions.

Social implications

Given the increasing number of SMEs in Belgium, their significant role in the economy, the specific characteristics of the country in terms of political decision making, the institutional differences between regions and the current uncertain economic circumstances, bankruptcy prediction seems to be a necessity for the country.

Originality/value

The originality of this paper lies in the fact that Belgian SMEs have been studied. This study may also be of interest to investors or managers because it may help them highlight accounting measures they should closely follow up to avoid bankruptcy.

Details

Review of Accounting and Finance, vol. 15 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

1 – 10 of over 3000