Are the Financial Bankruptcy Predictors Branch’s Specific? The Evidence from the Czech Manufacturing and Agriculture Companies

conference paper

English

Introduction Bankruptcy of a company causes a significant loses to owners and other stakeholders. Many scientific efforts have been dedicated to creating a more accurate model by to analyzing different sets of predictors (variables of the model) or a different set of methods. Previous work showed that these models are less effective in application in alternative branch, period or economic environment than that from which the data on which they were developed was taken often. Most of the previous works analyse the mentioned problems on the sample of manufacturing firms; there is a limited attention paid to other branches. The aim of this paper is to analyse the significance of a set of financial ratios in different time periods and two branches. Data and methodology The sample under investigation is comprised of 43,515 companies in agriculture and manufacturing. There are 42,989 active (or financially healthy companies) and 526 bankrupt companies (a year before bankruptcy). We tested a set of 16 financial ratios covering several aspects of company’s financial health, mentioned in previous studies on company’s bankruptcy prediction. Financial ratios were defined for each analysed company in the sample of active and in the sample of bankrupt companies. The ratios were calculated according to status of the company (i.e. active or bankrupt), the last reported year (2008, 2009,…, 2013), i.e. in case of bankrupt companies the year of bankruptcy and finally according to the number of years prior bankruptcy (t+1, t+2, …,t+5). The F-test and t-test were applied to test the potential differences between financial ratios of the samples of active and bankrupt companies and the p-values of these tests were analysed. We found that three ratios (working capital to total assets, earning before interests and tax to total assets and current liabilities to total assets) are time specific in the branch of manufacturing. The sales to total assets ratio works well in manufacturing and agriculture too. Other analysed turnover ratios, like the stock turnover (sales to stock) or the trade receivables turnover (sales to debtors) also work well in both branches.

Bankruptcy Prediction Models, Financial Ratios, Model Robustness, Manufacturing, Agriculture

REŽŇÁKOVÁ, M.; KARAS, M.

2015

14. 9. 2015

Mendel University in Brno

Madrid, Spain

978-80-7509-379-0

X. International Conference on Applied Business Research

Business, Business Finance

850

869

19