INSOLVENCY PREDICTION IN THE PORTUGUESE CONSTRUCTION INDUSTRY

Abstract

This study tries to determine the firms' specific variables considered determinant to predict the probability of insolvency of Portuguese companies in the construction industry, considering a sample of 150 insolvent firms and 150 operating companies. We consider a set of economic and financial ratios to analyze the insolvency prediction and apply the linear probability model, as well as the Logit and Probit models. The results show that the main ratio to predict the insolvency was the cash-flow to total assets ratio, suggesting that the higher the cash-flow to total assets ratio value, the lower the probability of insolvency. The results can be used by policy makers to minimize the spill over effect of construction crisis to the economy.