OMEGA SCORE MODEL FOR PREDICTING FIRM DEFAULT: APPLICATION IN THE REPUBLIC OF CROATIA

Stjepan Srhoj ()
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Stjepan Srhoj: Ekonomski fakultet Split, Hrvatska

Poslovna izvrsnost-Business Excellence, 2022, vol. 16, issue 2, 53-73

Abstract: When a firm is unable to pay its debts, creditors have the option of foreclosing the firm. The procedure for blocking a firm is conducted in front of the Financial Agency. For the first time, this article applies the Omega Score model (Altman et al., 2022) to the population of firms in the Republic of Croatia. Data on annual financial statements, firm blockades, firm employment contracts and the court register are used. Using the Omega Score model, firms can be divided into three groups: 1) low risk (Alpha), 2) medium risk (Beta) and 3) high risk (Gamma) of default. The results of this article show five findings, of which four in the context of expansion and one during the pandemic. First, almost 90% of the firms in the economy are firms with a low risk of default. Second, the vast majority of firms that have a medium or high risk of default are micro firms. Thirdly, a higher share of risky firms is in developed counties, and a smaller share in less developed counties. Third, approximately 70% of firms at high risk of default are concentrated in five sectors. Fifth, although the Omega Score predicts default and not necessarily bankruptcy, the analysis indicates that more than 50% of high-risk firms in 2019 initiate bankruptcy proceedings by October 2022. The article presents the possibilities of using Omega Score as a tool for systematic monitoring of firm defaults in the economy.

Keywords: Omega Score; financial distress; Altman; credit risk (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:zag:busexc:v:16:y:2022:i:2:p:53-73

DOI: 10.22598/pi-be/2022.16.2.53

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