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AN EMPIRICAL RESEARCH ON EARLY BANKRUPTCY FORECASTING MODELS: DOES LOGIT ANALYSIS ENHANCE BUSINESS FAILURE PREDICTABILITY?

Michalis Glezakos

University of Piraeus, Greece

 

John Mylonakis

Hellenic Open University, Greece

 

Katerina Oikonomou

National Bank of Greece

 

ABSTRACT

The forecast of bankruptcy is of grate value to investors, creditors, lenders and anyone who relies upon the company viability. As a consequence, numerous studies have tried to develop models enhancing early bankruptcy forecasting. To this end, Logit is the most frequently employed methodology, because it has been proved very effective. Within the framework of the present study, it was attempted to construct Logit models, which enable early identification of Greek non-viable companies. The results can be characterized, on average, as satisfactory, given that healthy companies are correctly classified up to 95% of the companies in the sample. However, the classification error of the bankrupt ones is high, ranging from 30% to 60%, thus limiting the modelsí practical applicability.

Keywords: Logit Analysis, bankruptcy forecasting, corporate failure, financial ratios

JEL Classification Code: G17, G33, C13, C51, C53