Business Excellence, Vol. 16 No. 2, 2022.
Original scientific paper
https://doi.org/10.22598/pi-be/2022.16.2.53
OMEGA SCORE MODEL FOR PREDICTING FIRM DEFAULT: APPLICATION IN THE REPUBLIC OF CROATIA
Stjepan Srhoj
orcid.org/0000-0002-0669-8679
; Ekonomski fakultet Split, Hrvatska
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.
Hrčak ID:
287217
URI
Publication date:
14.12.2022.
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