Using dea as a useful tool for bankrupty assessment in romanian´s enterprises

 

Zuzana Rowland¹, Tomas Krulicky²*

¹Ing. Zuzana Rowland, MBA, PhD., Institute of Technology and Business in Ceske Budejovice, Okruzni 517/10, 37001 Ceske Budejovice, Czech Republic, rowland@mail.vstecb.cz

²Ing. Tomas Krulicky, BBA, Institute of Technology and Business in Ceske Budejovice, Okruzni 517/10, 37001 Ceske Budejovice, Czech Republic, krulicky@mail.vstecb.cz

*Corresponding author

 

Abstract

Diagnosing the financial health of businesses is one of the relatively frequently discussed topics in management practice. Therefore, there are constant attempts to improve the diagnosis of the financial health of enterprises using modern quantitative methods, especially in recent years, the application of relatively non-standard methods, data envelopment analysis (DEA). Finance is a large area that uses economic tools, models, and processes to solve financial problems and benefit from new business opportunities. Finance also involves creating corporate strategies to maximize profits. Instead of maximizing profits, we can theoretically maximize the company's liabilities so that the company can go bankrupt. And it is the bankruptcy of companies that is the topic that we address in this research paper. DEA is a non-parametric method that measures the estimates of the classification function burden on the separation of failed and non-defaulted companies. We focus on DEA's ability to assess the bankruptcy of companies in Romania. The DEA method is unusual as there is no need to address many of the assumptions that must be followed with other methods. At the same time, it is not necessary to have a large sample to assess bankruptcy, making this method more attractive to the application of banker assessment. In the first part of the article, we deal with important theoretical aspects of the problem. At the same time, authors who dealt with a similar issue and in some way, helped to process the processing of the analytical part. Subsequently, we created a database and based our analysis of the financial health of Romanian companies on the negative DEA philosophy. We have constructed a threshold of financial distress, which is made up of businesses that are very likely to run into financial problems soon. This has made it relatively easy to classify the companies surveyed as those with a relatively low probability of financial failure and those with a probability of financial failure in the near future relatively high. DEA is not one of the most widely used tools for detecting financial health, and this was also the motive for choosing this model for the discussion of an article whose role was to assess the financial health of businesses through an innovative approach.