Discriminant Analysis Models in the Prediction of Corporate Insolvency
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The attempts to transplant into Poland the early warning models that aim at the diagnosis of conditions that might lead to a company's insolvency have not proved satisfactory enough and, at the same time, indicated a need to build models that are better adapted to the specificity of business environment that obtains in Poland. The studies initiated in the Institute of Economics of the Polish Academy of Sciences in 1997 helped to construct a series of bankruptcy models based on discriminant analysis. Each of the seven constructed models is characterized by a specific set of indices and ratios that constitute its core and, moreover, could be applied in varying conditions. The efficacy of numerically specified models has been tested empirically. Their use enables an early (with a lead time of 3 to 4 years) identification of threats that might imperil the economic survival of a firm.
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