Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: The use of discriminant analysis in the assessment of municipal company's financial health
Issue: Vol. 12, No 2, 2019
Published date: 06-2019 (print) / 06-2019 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Larysa Yakymova
Yuriy Fedkovych Chernivtsi National University

Vasyl Kuz
Yuriy Fedkovych Chernivtsi National University
Keywords: municipal company, financial health, multiple discriminant model, M-Score, CEE countries
DOI: 10.14254/2071-789X.2019/12-2/4
Index PUBMS: ca997407-ad3c-11e9-bbfd-fa163e0fa1a0
Language: English
Pages: 64-78 (15)
JEL classification: J23, E24, B59
Website: https://www.economics-sociology.eu/?664,en_the-use-of-discriminant-analysis-in-the-assessment-of-municipal-companys-financial-health
Licenses:
Abstract

Decentralization processes in the CEE countries have stimulated the search for measures of financial health of municipal companies that would be comparable and understandable to a broad range of stakeholders. In this study, we have developed a five-factor discriminant model for assessing municipal company’s financial health (M-Score model) using data on 50 Ukrainian companies during 2014-2017. The final test sample consisted of 71 companies operating in Bulgaria, Croatia, Czech Republic, Poland, Romania and Ukraine. Our findings can be summarized as follows. First, the empirical model suggests that the equity-assets ratio, the current ratio, and the average accounts receivable turnover have both the highest discriminatory power and the greatest impact on the municipal company’s financial health. Secondly, we provide convincing evidence that the municipal company’s financial health does not depend on the region, but on the nature of its activity and the purpose of enterprise activity. In particular, water and energy utilities are generally financially unhealthy, and out of 45 so-called necessary enterprises, only 12 are classified as financially healthy. The company’s M-Score will help managers, lenders, investors, local authorities, and the public to answer the following questions: Can the company avoid financial default? What is its position at the local level? What is its place in the industry?

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