Default Prediction Modelling for Small Enterprises: Case Slovakia

Business financial failure prediction is of critical importance for decision making of investors, mangers and shareholders. Over the past 40 years, the topic of "business failure prediction" has developed to a major research domain in corporate finance. In current financial failure prediction models, various financial ratios are usually as prediction variables, which implicates that these financial ratios represent the possible cause of financial failure. It is widely recognized that a main cause of financial failure is poor management, and that business operation efficiency is a good reflection of a firm's management. The goal of the contribution is to compile a complex model of prediction under conditions of the Slovak Republic, we used methods of discriminatory analysis, logistic regression and decision trees, all of which served to model the prediction of bankruptcy or unfavourable business development in the future. To conduct the research, we have used the data of Slovak enterprises, obtained from annual financial reports covering the year 2015 and the calculated financial ratios of profitability, activity, liquidity and indebtedness that may affect the financial health of the company were applied in the regression analysis. Realizing the multiple regression analysis, the statistically significant determinants that affect the future financial development of the company are identified, as well as the regression model of the bankruptcy prediction. Financial health prediction models for businesses have the potential to provide methodological tools or mechanism not only for financial management but can also be a positive solution for other disciplines and are interdisciplinary in their nature.