The Evaluation of the Success Rate of Corporate Failure Prediction in a Five-Year Period
Martin Pech, Jaroslava Prazakova, Lucie Pechova
bankruptcy models, bankruptcy prediction, financial statement analysis, corporate finance, competitiveness
The development of bankruptcies in the Czech Republic is closely related to the impact of the
global financial economic crisis, which, among other things, has also affected the competitiveness
of Czech companies to a great extent. The future state of overall company financial health
can be determined through prediction models. This paper discusses the history of financial
analysis and the most widely used models, with the main purpose of the paper to compare the
accuracy of various prediction models and to decide which model has the highest prediction success
rate. The sample consisted of the total of 90 Czech companies, out of which 1/2 were companies
in bankruptcy and 1/2 were non-bankrupt companies. Ratio indicators of given models
were calculated from balance sheets as well as profit and loss statements for a five-year period.
The reliability of the accurate classification of accounting units is verified by a confusion matrix.
The highest total success rate of classification was achieved by Zmijevski model, which had the
highest predictive value. Another partial objective of the paper is to determine whether the accuracy
rate of the bankruptcy models changes with branches within which the companies operate.
The hypothesis about differences between the branches is confirmed. The most statistically
significant differences were shown between Wholesale and Retail and the Processing Industry,
with the results of models varying among different branches. The results show that taking into
account the branches the company is operating in is advisable for selecting prediction models.
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Pech, M., Prazakova, J., & Pechova, L. (2020). The Evaluation of the Success Rate of Corporate Failure
Prediction in a Five-Year Period. Journal of Competitiveness, 12(1), 108–124. https://doi.org/10.7441/joc.2020.01.07