Forecasting bankruptcy in the wood industry
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ORIGINAL ARTICLE
Forecasting bankruptcy in the wood industry Tomasz Noga1 · Krzysztof Adamowicz1 Received: 8 August 2019 / Accepted: 23 October 2020 © The Author(s) 2020
Abstract The assessment of a company’s financial condition is an effective tool, which supports the management system. Nowadays a number of models are available, most often multi-branch ones, which are able to predict the financial situation of an enterprise. Models solely intended for just one line of business are a rarity. As far as the wood sector is concerned, no homogenous model suited to the sector has been created. The article aims to present the final stage of research dealing with predicting bankruptcy in the wood sector. The bankruptcy prediction model presented in this paper, called the model for forecasting bankruptcy of wood enterprises (FMWE), has been developed specifically for the wood sector. The process of model construction was presented and the correctness of forecasts built with the use of FMWE was verified. The predictions were based on 1-, 2- or 3-year periods. Furthermore, the effectiveness of the FMWE projections was compared to the 10 most popular bankruptcy prediction models used in Poland. It was observed that in comparison with other prediction models, FMWE predictions for this particular industry indicate greater credibility, up to 90%, for 1-year and 2-year predictions.
1 Introduction The first theoretical aspects which focused on predictions concerning bankruptcies have at least a 50-year long history (Altman 1968; Beaver 1966). The lender has to assess the risk involved in extending credit to a specific borrower including the ability and willingness to fulfill debt obligations. All the issues crucial to modelling borrowers’ and lenders’ behavior in an asymmetric information context are also relevant in designing the network of credit relationships (Gatti et al. 2009). The literature on this subject is constantly growing and developing; among other reasons, this is due to the fact that predictions which focus on dangers and hazards are used in numerous contexts dealing with business management (Jones 2017). Altman (2018) conducted a 50-year long retrospective assessment of credit risk models based on the multidimensional discriminant analysis and its applicability both to financial markets and managerial strategies. He concluded that despite its ‘old age’, the discriminant analysis may still be treated as a standardized analytical tool. Moreover, in his research, he drew special attention to * Krzysztof Adamowicz [email protected] 1
Faculty of Forestry and Wood Technology, Poznan University of Life Sciences, Wojska Polskiego 28, 60‑637 Poznań, Poland
the position of the Altman Z-score formula in bankruptcy prediction studies, based on which most models for bankruptcy or insolvency are gauged; this formula is also often used by those working in the financial markets as well as researchers. In his article, Altman (2018) shared his thoughts on the evolution of Altman’s bankruptcy prediction models together
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