Different bankruptcy prediction patterns in an emerging economy: Iranian evidence

Abstract

Purpose – Bankruptcy, stock price fluctuations and making decisions to invest on the listed<br><br>companies on the Tehran Stock Exchange show the need to have some tools for evaluating the financial<br><br>potential of companies. One of the tools for evaluating financial power to investment in companies is<br><br>using analysis of financial ratios and obtaining the patterns for predicting the bankruptcy of companies.<br><br>The purpose of this study is to modify the current patterns for predicting bankruptcy in proportion to<br><br>the environmental status of Iran and to present a new pattern for determining the bankruptcy of the<br><br>listed companies.<br><br>Design/methodology/approach – To modify the patterns and present a new pattern, in this<br><br>research, the hypotheses pertinent to the ability for right classification of the companies are designed by<br><br>the modified patterns of predicting the company’s bankruptcy and ranking, that is according to the<br><br>envelopment analysis method and by comparison of the results and presenting a new prediction<br><br>pattern.<br><br>Findings – The hypotheses test results show that modification of bankruptcy patterns and<br><br>presentation of a new bankruptcy pattern are confirmed by the data envelopment analysis.<br><br>Originality/value – The current paper is almost the first paper which combined several different<br><br>methods of bankruptcy prediction.