Financial Indicators as Predictors of Illiquidity
Posted: 5 Apr 2017
Date Written: April 3, 2017
The main objective of this study is the development of the model for predicting illiquidity, i.e. identification of financial indicators on the basis of which one can predict illiquidity. The research focus is on large companies in the Republic of Serbia. Bearing in mind the results of previous research and the assumptions underlying the logistic regression, the paper relied on logistic regression for drawing conclusions. For each of the 426 companies included in the sample, based on data from financial statements, financial ratios were calculated in respect of: liquidity, activity, solvency, profitability, and effectiveness, which were used as independent variables in the study. The sample of 426 items we split into two subsamples. We developed the model on subsample of 331 items (V set) and we tested the model on subsample of 95 items (T set). The research results show that in the prediction of illiquidity of large companies in Serbia, from a total of 23 financial indicators included in the model, the following distinguish themselves as significant: capital turnover ratio, inventory turnover ratio, real asset coverage ratio, net profit ratio, return on total assets and return on equity.
Keywords: Prediction, Illiquidity, Insolvency, Financial Indicators, Large Companies, Developing Countries
JEL Classification: M21, G33, G01
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