Dependence of Company Size on Factors Influencing Bankruptcy

¹ Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipova 41a, 602 00 Brno, Czech Republic
² Czech Technical University in Prague, Masaryk Institute of Advanced Studies, Kolejní 2637/2a, 160 00 Prague 6, Czech Republic

^* Corresponding author: martina.sponerova@econ.muni.cz

Abstract

Research background: There is extensive empirical literature on default prediction methodologies. Many authors during the last fifty years have examined several possibilities to predict default or business failure. The reviews from the last years show that the closer the similarity of businesses, the greater accuracy of bankruptcy models.

Purpose of the article: The aim of this article is finding if there exist different factors that could predict bankruptcy depending on the size of the company. Our motivation is to show if there exist differences when predicting bankruptcy according the size of the company.

Methods: This paper focuses on the Czech economy, specifically at small and medium sized enterprises (SMEs). It is the ongoing research about the value of several popular bankruptcy models that are often applied, namely the Altman Z-score, the Ohlson O-score, the Zmijewski’s model, the Taffler’s model, and the IN05 model. We have used logistic regression and investigated around 2 800 companies, of which 642 failed during the period 2010 – 2017.

Findings & Value added: Results of the analysis confirm research hypotheses that there exist different factors which could predict bankruptcy depending on the size of the company and exploit common used financial indicators to assess the probability of bankruptcy precisely. We have found that for the segment of micro-enterprises is necessary to pay attention to liquidity and profitability. Small enterprises emphasize to leverage, liquidity and profitability while the model developed for the segment of medium-sized enterprises measures most of all leverage, liquidity and activity.