Insolvency prediction model of the company: the case of the Republic of Serbia

Abstract

In this article, the authors analyse the existing foreign insolvency prediction models of the company and on the basis of the sample of solvent and insolvent companies they aim to develop a new model to predict insolvency of a company by binomial logistic regression (LR), which will be suitable for the business environment in the Republic of Serbia. The research seeks to determine statistically most important financial ratios in predicting insolvency of Serbian companies. As a result of research, a model for the prediction of bankruptcy was created, which accurately classifies 82.9% of solvent (‘healthy’) Serbian companies and 93.3% of Serbian companies which have undergone bankruptcy proceedings (Serbian insolvent companies), while the average (total) accuracy of the prediction model is 88.4% of the cases.