Bankruptcy Model Construction and its Limitation in Input Data Quality

Dana Kubíčková¹, Vladimír Nulíček²  
(1. Department of Finance, Faculty of Economic Science, University of Finance and Administration, Czech Republic; 2. Department of Computer Science and Mathematics, Faculty of Economic Science, University of Finance and Administration, Czech Republic)

Abstract: The aim of the research project solved at the University of Finance and administration is to construct a new bankruptcy model. The intention is to use data of the firms that have to cease their activities due to bankruptcy. The most common method for bankruptcy model construction is multivariate discriminant analyses (MDA). It allows to derive the indicators most sensitive to the future companies’ failure as a parts of the bankruptcy model. One of the assumptions for using the MDA method and reassuring the reliable results is the normal distribution and independence of the input data. The results of verification of this assumption as the third stage of the project are presented in this article. We have revealed that this assumption is met only in a few selected indicators. Better results were achieved in the indicators in the set of prosperous companies and one year prior the failure. The selected indicators intended for the bankruptcy model construction thus cannot be considered as suitable for using the MDA method.

Key words: bankruptcy models; prediction ability; financial indicators; normal distribution

JEL codes: M21, G33