Applicability of bankruptcy prediction models in the western Hungarian food retail sector

Abstract

The article examines the applicability of existing bankruptcy prediction models in the food retail sector. The industry has been chosen for analysis due to the fact, that according to official statistics, it has been significantly affected by the events of recent years (Covid-19 epidemic and economic crisises). For the study, a database was created with all firms that had ceased to operate in the sector over an 11-year period in 3 counties. The main objectives of the study were: 1) to check whether there are differences in the reliability of the models and which models are most applicable to the selected sector; 2) to investigate the accuracy of the models over the time horizons of bankruptcy; 3) to check the accuracy of forecasting models by type of bankruptcy completion procedure; 4) provide suggestions on the possibilities of applying bankruptcy forecasting models and indicate directions for further research. During the research, it was found that not all considered models are suitable for accurate forecasting. Two of the five models have very low prediction accuracy (Virág-Hajdu model and Tafler model). Assessment of model accuracy across bankruptcy time horizons showed that there is little variation in short-term forecast accuracy, with a slight decrease in the reliability of the models in the long term. Examining the predictive accuracy of the models by completion procedure type revealed that the types of procedures affected the prediction. The most accurate results were obtained for liquidation, while voluntary liquidation was the least accurate in several cases. The use of bankruptcy prediction models is important for an enterprise because they are a key tool for reducing its operational risk and preventing financial problems. The study can provide information for businesses in the food retail sector and the results can be used for further research. There are additional opportunities for expanding the enterprise database, transferring the research to other sectors of the economy, and expanding the number of bankruptcy models to study the suitability of their application to enterprises of various industries