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AUTHOR(S): 

Michal Karas, Mária Režnáková

 

TITLE

Could the Coefficients Re-Estimation Solve the Industry or Time Specific Issues?

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KEYWORDS

Bankruptcy models, Discrimination capability, Financial ratios, Model robustness, Manufacturing, Linear discrimination analysis, Probit and Logit method, AUC value

ABSTRACT

The aim of this paper is to examine discrimination performance of three bankruptcy prediction models in environments and periods different from the ones utilized by deriving the models. We compared selected models’ accuracy in the original setting and present conditions. Secondary aim was to examine a way of possible increasing of the discrimination performance of models by the recalculation of the classification functions. Discrimination performance of the models and financial ratios was tested on companies operating in manufacturing business. Results conclusively demonstrate that the discrimination accuracy of bankruptcy models deteriorates significantly in different environments. The classification function of each model was recalculated using the data from Czech manufacturing companies. For the adjustment of models’ coefficients the same methods, as used originally by theirs authors, were applied, i.e. the probit method, the linear discrimination analysis and the logit method. The results shown, that the re-estimation of model coefficient could lead to its higher classification accuracy in alternative conditions. We can dedicate that recalculating of the classification rules is one of the ways to increase discrimination performance of the bankruptcy prediction models in different environment.

Cite this paper

Michal Karas, Mária Režnáková. (2017) Could the Coefficients Re-Estimation Solve the Industry or Time Specific Issues?. International Journal of Economics and Management Systems, 2, 206-213