Identification of financial signs of bankruptcy: A case of industrial enterprises in the Czech Republic

Identification of financial signs of bankruptcy: A case of industrial enterprises in the Czech Republic

Stať ve sborníku v databázi WoS či Scopus

The current approach to creating bankruptcy models involves a search for predictors that have been shown to predict bankruptcy in only one period, namely a year before it occurs. That approach does not allow to identify the root causes of bankruptcy. Yet studies exist (Beaver, 1966; Deakin, 1972; Henerby, 1996; Niemann, Schmidt, Neukirchen, 2008) which suggest that the signs of bankruptcy could be recognized much sooner. The intent of this article is to present the results of a research aspiring to identify the warning signs of bankruptcy within one to five years before it occurs. It was found that a predominant sign of an eventual bankruptcy is a decrease in the performance of company's assets. In the period of three years before the bankruptcy, this development is further aggravated by a decline in the quality of generated earnings. The causes and the first signs of a decrease in the performance of company's assets appear more than five years before the company actually experiences bankruptcy.

The current approach to creating bankruptcy models involves a search for predictors that have been shown to predict bankruptcy in only one period, namely a year before it occurs. That approach does not allow to identify the root causes of bankruptcy. Yet studies exist (Beaver, 1966; Deakin, 1972; Henerby, 1996; Niemann, Schmidt, Neukirchen, 2008) which suggest that the signs of bankruptcy could be recognized much sooner. The intent of this article is to present the results of a research aspiring to identify the warning signs of bankruptcy within one to five years before it occurs. It was found that a predominant sign of an eventual bankruptcy is a decrease in the performance of company's assets. In the period of three years before the bankruptcy, this development is further aggravated by a decline in the quality of generated earnings. The causes and the first signs of a decrease in the performance of company's assets appear more than five years before the company actually experiences bankruptcy.

bankruptcy prediction, signs of bankruptcy, return on assets, company performance

bankruptcy prediction, signs of bankruptcy, return on assets, company performance

KARAS, M.; REŽŇÁKOVÁ, M.

25.04.2013

Zlín

978-80-7454-246-6

Proceedings of the 6th International Scientific Conference: Finance and the performance of firms in science, education, and practise

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