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Modern models for predicting bankruptcy to detect early signals of business failure: Evidence from Montenegro

  • 0Faculty of Economics Podgorica, University of Montenegro, Podgorica, Montenegro.
Plos One +

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May 21, 2024

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May 21, 2024

View abstract on PubMed

Summary

This summary is machine-generated.

This study develops a logistic regression model to predict business failure in Montenegro. Key indicators like Degree of Indebtedness and asset turnover effectively signal bankruptcy, aiding competitiveness.

Area Of Science

  • Business and Economics
  • Financial Risk Management

Background

  • Bankruptcy prediction models are crucial for assessing business viability.
  • Continuous operations positively influence market value and stakeholder confidence.
  • Limited application of bankruptcy prediction models in the Montenegrin market presents a research gap.

Purpose Of The Study

  • To explore and validate modern bankruptcy prediction models for early detection of business failure signals.
  • To develop a logit model tailored for medium and large companies in Montenegro.
  • To enhance the competitiveness of Montenegrin companies through improved financial risk assessment.

Main Methods

  • Analysis of financial data from 100 Montenegrin companies (30 bankrupt, 70 stable) between 2015-2020.
  • Application of logistic regression to construct a bankruptcy prediction logit model.
  • Utilizing Likelihood ratio tests to assess the significance of predictive indicators.

Main Results

  • The developed logit model empirically validates modern bankruptcy prediction techniques in Montenegro.
  • Degree of Indebtedness (DI) and turnover ratio of business assets (TR) were identified as significant predictors (p < 0.001).
  • The model demonstrates strong predictive power for early bankruptcy signals.

Conclusions

  • Bankruptcy prediction is integral to corporate strategy, potentially reducing overall bankruptcies.
  • The study bridges the gap between theory and practice in Montenegrin financial risk management.
  • The developed logit model offers potential applicability to similar economies and serves as a foundation for future research.