Bankruptcy Prevention: New Effort to Reflect on Legal and Social Changes

Every corporation has an economic and moral responsibility to its stockholders to perform well financially. However, the number of bankruptcies in Slovakia has been growing for several years without an apparent macroeconomic cause. To prevent a rapid denigration and to prevent the outflow of foreign capital, various efforts are being zealously implemented. Robust analysis using conventional bankruptcy prediction tools revealed that the existing models are adaptable to local conditions, particularly local legislation. Furthermore, it was confirmed that most of these outdated tools have sufficient capability to warn of impending financial problems several years in advance. A novel bankruptcy prediction tool that outperforms the conventional models was developed. However, it is increasingly challenging to predict bankruptcy risk as corporations have become more global and more complex and as they have developed sophisticated schemes to hide their actual situations under the guise of “optimization” for tax authorities. Nevertheless, scepticism remains because economic engineers have established bankruptcy as a strategy to limit the liability resulting from court-imposed penalties.