Bankruptcy prediction in Brazil: a two-stage model employing accounting data

Para tentar medir e prever a “saúde financeira” de empresas, pode-se usar os chamados modelos de previsão de insolvência, construídos com apoio em técnicas estatísticas e aplicados para analisar índices econômico-financeiros selecionados, obtidos a partir dos demonstrativos contábeis. A partir da metade dos anos 90, questões tais como o aparecimento de novas técnicas de modelagem, a crescente importância da gerência do risco de crédito e as condições econômicas vigentes trouxeram de volta o interesse pela análise e previsão da insolvência de empresas. O objetivo deste artigo é descrever um método para elaboração de modelos de previsão de insolvência, fundamentado em técnicas estatísticas, e ilustrá-lo através de uma aplicação empírica a uma amostra de empresas comerciais e industriais brasileiras, empregando dados para o período de 1996 a 2000.It may happen that firms collapse irrespective of their financial statements being published in a regular basis and being prepared according to professional accounting standards and statutory requirements. The relationship between accounting data and business failure therefore deserves ongoing and expert attention. Bankruptcy prediction refers to the search for applicable models or procedures allowing to anticipate convincing signals of future problems.This paper proposes an empirical model for bankruptcy prediction that proceeds in two-stages: the first seeks to select appropriate predictors; the second employs discriminant analysis to classify successful and bankrupt firms. Empirical information has been collected from accounting data published by the Brazilian equivalent of SEC and refers to the period 1996 / 2000. Considering comparable figures reported in the literature, retained models obtain quite good hit ratios. For the selected time period, accounting data may be considered a convenient empirical support to predict bankruptcy in the Brazilian context

Previsão de dificuldade financeira em empresas de capital aberto

Several models for forecasting bankruptcy have been developed over the years, one of the reasons for which is the important part it plays in decision-making. However, forecasting a company’s bankruptcy leaves a very short time for stakeholders to change the situation. It is in this context that this paper arises in order to develop a model for predicting financial distress, which is identified as a step prior to bankruptcy. The predictive model uses the logistic regression technique with panel data and a sample of Brazilian publicly-traded companies with shares listed on the São Paulo Stock, Commodities, and Futures Exchange between 2001 and 2014. As well as financial variables, the final model includes market expectations (macroeconomic) and sector variables. These variables are statistically tested and the hypothesis is confirmed that they improve the accuracy of the model. The research identified the existence of financial distress in 96% of the companies that went bankrupt. In addition, the relationship between the phenomena of bankruptcy and financial distress is verified, using financial and macroeconomic explanatory variables. The results demonstrate that most (83%) of the explanatory variables in the model for predicting bankruptcy are also present in the model for predicting the phenomenon of financial distress. The expected gross domestic product variables and the quick ratio, asset turnover, and net equity over total liabilities financial variables are statistically significant in predicting both phenomena. With this evidence, the study suggests the use of the concept of financial distress as a stage prior to bankruptcy and provides a model for predicting financial distress with 89% accuracy when applied to publicly-traded companies in Brazil in the period examined.Ao longo dos anos, desenvolveram-se diversos modelos de previsão de insolvência, sendo uma das razões o seu importante papel na tomada de decisão. Entretanto, ao prever a insolvência de uma empresa, proporciona-se um tempo muito curto para que as partes interessadas consigam agir e reverter essa situação. É nesse contexto que o presente trabalho surge, com o objetivo de desenvolver um modelo de previsão de dificuldade financeira identificado como uma etapa anterior à insolvência. No desenvolvimento do modelo de previsão, utiliza-se a técnica de análise de regressão logística com dados em painel e a amostra de empresas brasileiras de capital aberto com ações negociadas na Bolsa de Valores, Mercadorias e Futuros de São Paulo, entre os períodos de 2001 e 2014. O modelo final contempla, além das variáveis financeiras, as variáveis de expectativa de mercado (macroeconômicas) e setorial. Essas variáveis são testadas estatisticamente e a hipótese de que melhoram a previsibilidade do modelo é confirmada. A pesquisa identificou a existência do estado de dificuldade financeira em 96% das empresas que entraram em insolvência. Além disso, verifica-se a relação entre os fenômenos de insolvência e dificuldade financeira. Os resultados obtidos demonstram que a maioria (83%) das variáveis explicativas do modelo de previsão de insolvência também está presente no modelo de previsão do fenômeno de dificuldade financeira. As variáveis de expectativa do produto interno bruto e as variáveis financeiras de liquidez seca, giro do ativo e patrimônio líquido sobre passivo total são estatisticamente significativas para prever ambos os fenômenos. Com esses indícios, o estudo sugere a utilização do conceito de dificuldade financeira como uma etapa predecessora da insolvência e disponibiliza um modelo de previsão de dificuldade financeira com poder de acerto de 89% dos casos, quando aplicado às empresas de capital aberto no Brasil no período pesquisado

Reshaping globalisation: a new order for international financial markets

Since the Mexican crisis in 1994/95, a large number of developing countries and emerging markets have been hit by financial crises. Argentina is the last country that is suffering from dramatic economic problems. The main cause of these crises are the deregulation and liberalisation of financial markets that have been associated with the current model of globalisation. This model is not sustainable: Is has contributed to massive economic problems in the developing world without providing the promised rewards in form of higher growth and reduced poverty. In this paper, the three main areas that influence the shape of financial markets are discussed and improvements are suggested: Firstly the exchange rate regimes of developing countries, secondly the shape of international credit markets and the asymmetric relationship between creditors and lenders and thirdly the main institution that provides partial governance, i.e. the International Monetary Fund. International financial markets have gained in importance, but they still lack many of the features that characterises the national financial sector. If globalisation shall be continued, we need those governance structures, e.g. a lender of last resort, at the international level. The reform agenda suggested in this paper is comprehensive, but rather evolutionary. Markets need rules and regulations, and today these are often not existent at the international level

Analysis of the impact of adopting international accounting standards in predicting the insolvency of businesses listed on the BM&FBovespa brazilian stock exchange

Abstract: The financial statements of Brazilian companies have been transformed with the adoption of international accounting standards, and it was expected that this would offer more reliable information for decision-making. This study aims to analyze the influence of the adoption of international accounting standards in predicting corporate insolvency. The sample comprises 94 Brazilian companies listed on BM&FBovespa, divided into two groups: the first group has companies considered insolvent and the second group has solvent companies. For each insolvent company we selected another enterprise of the same segment, based on the nearest value of the total assets. The collected data comprised the period of 31 December 2004 to 31 December 2013. The explanatory variables include 29 financial indicators and the methodological procedure was the statistical method called Discriminant Analysis. The application of statistical tests on separate samples in periods before and after the adoption of IFRS, led to the conclusion that there was a considerable improvement in predicting insolvency after the adoption of international accounting standards, because the average accuracy increased from 73.5% to 82.1%. Keywords: Insolvency forecast. Financial indicators. International accounting standards. Análise do impacto da adoção das normas internacionais de contabilidade na previsão de insolvência de empresas listadas na BM&FBovespa Resumo: As demonstrações contábeis das empresas brasileiras foram revolucionadas com a adoção das normas internacionais de contabilidade e espera-se que tragam informações mais confiáveis para a tomada de decisão. O objetivo com este trabalho foi analisar a influência da adoção das normas internacionais de contabilidade na previsão de insolvência empresarial. A amostra compreende 94 empresas brasileiras listadas na BM&FBovespa, divididas em dois grupos: um com empresas consideradas insolventes e outro com as empresas solventes. Para cada empresa insolvente foi selecionada outra do mesmo segmento, com o valor do ativo mais próximo. Os dados coletados abrangem o período de 31 de dezembro de 2004 a 31 de dezembro de 2013. As variáveis explicativas compreendem 29 indicadores contábeis e o método aplicado baseia-se no método estatístico de Análise Discriminante. A aplicação de testes estatísticos em amostras separadas em períodos anteriores e posteriores à adoção das IFRS permitiu verificar que houve uma melhoria considerável na previsão de insolvência após a adoção das normas internacionais de contabilidade, pois a média de acerto aumentou de 73,5% para 82,1%. Palavras-chave: Previsão de insolvência. Indicadores contábeis. Normas internacionais de contabilidade

Counterparty credit risk management in industrial corporates

Ever since the financial crisis of the banking system of 2008 - 2010 the paradigm that deposits or other exposures towards major banks are safe has been fundamentally questioned. This put industrial corporates, who to support their business usually need to manage significant cash holdings or incur counterparty credit risk via derivatives, in the situation to develop or extend their resources for counterparty credit risk management. This paper provides a comprehensive overview over the practical issues into the subject benefitting largely from the findings of an interview series conducted with the respective heads of counterparty and customer credit risk management in the time period April - September 2011 of 25 large european enterprises with a large subset being members of the German DAX Index.Financial Risk Management; Credit Risk; Counterparty Credit Risk; CCR Management; Organisation; Financial Controlling; Financial Institutions; Banks

Использование модели Альтмана Z” при прогнозировании финансового положения компаний, зарегистрированных на турецкой фондовой бирже

For measuring financial performances of companies and identifying financial failure, there are a lot of models in the literature. Among these models, Z Score model is of the most used in terms of its being an accounting-based model and simple applicability. The purpose of this paper is found out whether the Z” Score model, which was revised by Altman, could be useful in making financial decisions about long-term firm value. For this purpose, panel cointegration analyzes were carried out among the variables, with the firm values of the publicly traded companies listed on the Turkish BIST (Istanbul Stock Exchange) as the independent variable and the Z” Score values as the dependent variable. Although the research is specific to Turkey, the results of the research are considered to be applicable globally, as Altman states that the Z” Score model can also be used by developing country companies. It has been proven that Altman Z” Score Model, applied in public company, has a high prediction power directed to financial success of the firms. According to the results of the analysis, 1 unit increase in the Z” Score values of the companies cause an increase of 0.353 units in the logarithmic return calculated over the firm value. Z” Score Model can be a precious indicator for heads of companies, accounting and financial managers, auditors, creditors, investors to make accurate decisions directed to assessing financial structures of companies in advance.Для измерения финансовых показателей компаний и выявления их финансового кризиса в научной литературе существует множество моделей. Среди них модель Z” Score является одной из наиболее используемых, поскольку она основана на бухгалтерском учете и проста в применении. Цель данного исследования — выяснить, применима ли модель Z” Score, усовершенствованная Альтманом, для оценки стоимости фирмы в долгосрочной перспективе. Проведен панельный анализ коинтеграции между переменными, где в качестве независимой переменной выступала стоимость компании, акции которой котируются на турецкой фондовой бирже BIST (istanbul stock exchange), а в качестве зависимой переменной — Z” Score. Несмотря на то, что исследование проводилось конкретно в Турции, его результаты считаются применимыми во всем мире, так как Альтман утверждает, что модель Z” Score может также использоваться компаниями из развивающихся стран. Доказано, что модель Altman Z” Score, примененная в отношении публичной компании, имеет высокую способность прогнозировать финансовый успех фирм. Согласно результатам анализа увеличение на 1 единицу значения Z” баллов компаний приводит к увеличению на 0,353 единицы логарифмического дохода, рассчитанного по стоимости фирмы. Модель Z Score может быть полезна для руководителей компаний, бухгалтерских и финансовых менеджеров, аудиторов, кредиторов, инвесторов при принятии верных решений, связанных с предварительной оценкой финансовых показателей компаний

In Strange Company: The Puzzle of Private Investment in State-Controlled Firms

A large legal and economic literature describes how state-owned enterprises (SOEs) suffer from a variety of agency and political problems. Less theory and evidence, however, have been generated about the reasons why state-owned enterprises listed in stock markets manage to attract investors to buy their shares (and bonds). In this Article, we examine this apparent puzzle and develop a theory of how legal and extralegal constraints allow mixed enterprises to solve some of these problems. We then use three detailed case studies of state-owned oil companies – Brazil’s Petrobras, Norway’s Statoil, and Mexico’s Pemex – to examine how our theory fares in practice. Overall, we show how mixed enterprises have made progress to solve some of their agency problems, even as government intervention persists as the biggest threat to private minority shareholders in these firms