Methodological Aspects of Predicting the Probability of Bankruptcy on the Example of Pharmaceutical Companies

Abstract

When it comes to the development of industrial enterprises, there is always the possibility of a crisis; therefore, for continuous sustainable operation it is necessary to develop preventive tools to predict the crisis processes in advance. The present paper covers the objective of developing and testing models for estimating the probability of bankruptcy based on logistic regression for sustainable development of domestic industrial enterprises. The study was conducted within the pharmaceutical industry, yet the methods of development and the testing technique can be applied in other industries. The paper presents the stages of model development (predictor formation, correlation and regression analysis) and its testing (evaluation of statistics parameters, comparative analysis with existing models). The use of the logistics model of bankruptcy assessment helps analyze the correlation between the indicators of enterprise’s economic condition and its degree of bankruptcy. Moreover, such a model can quantify the probability of bankruptcy at an industrial enterprise. The reliability and validity of the presented results is confirmed by the generalization of theoretical and methodological studies of experts in this field, the applied results are based on a large amount of financial information of domestic pharmaceutical enterprises and confirmed by the use of algorithms of economic and mathematical modeling recognized in the scientific community. The study used indicators of economic condition based on public reporting of 266 pharmaceutical companies, where one hundred companies were engaged in model development and the rest – its testing. The developed model is able to predict the probability of bankruptcy of pharmaceutical enterprises two years ahead. The small amount of calculations and lack of highly technical calculations helps quickly obtain information about the economic condition and versatile calculation makes it possible to conduct a comparative analysis of enterprises in the context of one industry

Keywords

• correlation and regression analysis
• industrial enterprises
• crisis management
• modelling
• logistic regression
• probability of bankruptcy
• elimination method
• pharmaceutical industry