Predicting the Risk of Encountering Financial Difficulties by the Example of Estonian Municipalities

DOI

10.2991/icaat-16.2016.30How to use a DOI?

Keywords

Municipality, financial difficulties, discriminant analysis, logit

Abstract

The objective of the study is to determine the financial and non-financial indicators which describe the financial difficulties encountered by Estonian municipalities and to prepare a model to predict the risk of encountering financial difficulties. In order to achieve the objective, the study employs multidimensional statistical analysis methods: discriminant analysis and logit analysis. The predictive model is based on the financial and non-financial indicators of Estonian municipalities for the years 2004-2014 and the risk of encountering financial difficulties is defined as the value of the variable primary operating outcome to depreciation of tangible fixed assets of the population over the years 2011-2014. The classification accuracy of the discriminant model comprising seven independent variables found as a result of the analysis is 88% and the same indicator for the logit model is 87%. The variable with the highest descriptive capacity in predicting the risk of encountering financial difficulties is the ratio of primary operating outcome to the primary operating revenues. The methods of the study and the predictive model prepared make a significant contribution to the development of this field of study in Estonia and are applicable also to other countries where municipalities operate under similar financial management principles.

Copyright

© 2016, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Pirgit Lohk
AU  - Paavo Siimann
PY  - 2016/12
DA  - 2016/12
TI  - Predicting the Risk of Encountering Financial Difficulties by the Example of Estonian Municipalities
BT  - Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)
PB  - Atlantis Press
SP  - 297
EP  - 306
SN  - 2352-5428
UR  - https://doi.org/10.2991/icaat-16.2016.30
DO  - 10.2991/icaat-16.2016.30
ID  - Lohk2016/12
ER  -