Re-estimation of company insolvency prediction models: survey on Italian manufacturing companies

The global research stems from the relevance of the global economic crisis.\r\nThe research has several objectives: 1) to test the degree of effectiveness of the insolvency\r\nprediction models, most widely used in the literature, including recent works (Jackson and Wood,\r\n2013), with reference to Italian manufacturing companies; 2) to modify the insolvency prediction\r\nmodels selected with the aim of identifying a company insolvency “alert model” which can be\r\nused by the various stakeholders; 3) to compare the effectiveness of the re-estimated models visà-\r\nvis the original ones. The following models were used, selected according to their diffusion and\r\nthe statistical technique used: 1) Discriminant analysis: - Altman (1983), - Taffler (1983); 2) Logit\r\nAnalysis: - Ohlson (1980). The study was carried out on a population of Italian companies (27,982\r\nnon-failed and 478 failed) with financial statements available for the years 2007-2012. It emerged\r\nthat, the overall error of the original models, using the original cut-off points, is significant. The\r\nerror is reduced for cut-off points different from those identified by the original authors.\r\nFurthermore, the new re-estimated models have an improved or identical effectiveness vis-à-vis\r\nthe original models. In particular, the Ohlson re-estimated model is the one that improves most\r\ncompared to the original model; however, the effectiveness of the Ohlson re-estimated model is\r\nlower than the Altman re-estimated model.