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Open AccessArticle

Comparison of Prediction Models Applied in Economic Recession and Expansion

Department of Economics and Management, University of Chemistry and Technology Prague, Technická 5, 166 28 Prague 6, Czech Republic
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J. Risk Financial Manag. 2020, 13(3), 52; https://doi.org/10.3390/jrfm13030052
Received: 31 January 2020 / Revised: 2 March 2020 / Accepted: 6 March 2020 / Published: 10 March 2020
As a rule, the economy regularly undergoes various phases, from a recession up to expansion. This paper is focused on models predicting corporate financial distress. Its aim is to analyze impact of individual phases of the economic cycle on final scores of the prediction models. The prediction models may be used for quick, inexpensive evaluation of a corporate financial situation leading to business risk mitigation. The research conducted is drawn from accounting data extracted from the prepaid corporate database, Albertina. The carried-out analysis also highlights and examines industry specifics; therefore, three industry branches are under examination. Enterprises falling under Manufacture of metal products, Machinery, and Construction are categorized into insolvent and healthy entities. In this study, 18 models are selected and then applied to the business data describing recession and expansion. The final scores achieved are summarized by the main descriptive statistics, such as mean, median, and trimmed mean, followed by the absolute difference comparing expansion and recession. The results confirm the expectations, assuming that final scores with higher values describe better corporate financial standing during the expansion phase. Similar results are achieved for both healthy and insolvent enterprises. The paper highlights exceptions and offers possible interpretations. As a conclusion, it is recommended that users need to respect the current phase of the economic cycle when interpreting particular results of the prediction models. View Full-Text
Keywords: models predicting financial distress; phases of economic cycle; Czech Republic models predicting financial distress; phases of economic cycle; Czech Republic
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Camska, D.; Klecka, J. Comparison of Prediction Models Applied in Economic Recession and Expansion. J. Risk Financial Manag. 2020, 13, 52.

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