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Book part
Publication date: 2 September 2020

Olimpia Livia Preda Buzgurescu and Negru Elena

Introduction – The Romanian industry was one of the most important traditional branches and in the context of the integration of the country into the European Union, the…

Abstract

Introduction – The Romanian industry was one of the most important traditional branches and in the context of the integration of the country into the European Union, the Romanian industry has made progress in the development of several types of industrial branches, attracting in this sector investors with foreign capital that have determined economic growth by branch having a major impact on the achievement of gross domestic product. The progress and sustainable development of a country is interdependent on both macroeconomic and microeconomic development, and the development of a branch of the economy leads to the creation of a stable environment for attracting new investors and implicitly to the upward evolution of the economy by branch.

Purpose – This article identifies models of bankruptcy risk analysis that have as variables relevant performance indicators for examining the bankruptcy risk of Romanian industrial companies so that it is verified how predictable and significant it is to avoid their potential bankruptcy.

Methodology – By using performance indicators such as liquidity, profitability and insolvency, the analysis aims to be a benchmark for the Romanian industrial companies’ research in terms of bankruptcy risk, but also the accuracy of the models chosen to diagnose a potential bankruptcy.

Findings – There was highlighted a strong relationship between the economic and financial indicators and the Z score functions.

Details

Contemporary Issues in Business Economics and Finance
Type: Book
ISBN: 978-1-83909-604-4

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Article
Publication date: 15 June 2021

Edmund Goh, Saiyidi Mat Roni and Deepa Bannigidadmath

Financial bankruptcy is inevitable in the tourism and hospitality ecosystem. Despite the pertinence of tourism and hospitality businesses going into bankruptcy, limited…

Abstract

Purpose

Financial bankruptcy is inevitable in the tourism and hospitality ecosystem. Despite the pertinence of tourism and hospitality businesses going into bankruptcy, limited studies have investigated the early warning signs and likelihood of a financial bankruptcy occurring in tourism and hospitality firms. This study examined the predictive value of financial ratios as potential indicators in predicting bankruptcy among tourism and hospitality firms.

Design/methodology/approach

Altman's z-score bankruptcy prediction model was applied through five key financial ratios to predict bankruptcy of the Thomas Cook Travel Group over a ten year period (2008–2018).

Findings

The key findings of this study strongly suggest that besides the size and location of the firm, financial ratios are reliable predictors and play a pivotal role in predicting the bankruptcy of a tourism and hospitality business.

Practical implications

The paper provides key stakeholders to adopt checks and balances to identify financial distressed tourism firms through financial ratios.

Originality/value

This is the first academic paper to inspect the financial history of Thomas Cook Travel Group in a financial ratio context, particularly following the bankruptcy of the firm in 2019.

Details

Asia Pacific Journal of Marketing and Logistics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1355-5855

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Book part
Publication date: 6 November 2015

Enrico Guarini, Anna De Toni and Cinzia Vallone

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the…

Abstract

Purpose

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the organizational level (micro) and the regulatory system (macro).

Methodology/approach

We use a relevant case of municipal bankruptcy in Italy to discuss the influence of governance characteristics, such as the political and management structure, interaction, and behaviors. The issues related to the accounting system and external audits are also considered. The data for this study are obtained from secondary sources such as audited budgetary reports, public documents, and reports from the Supreme Audit Institution.

Findings

The study indicates that the spoils system can favor the politicians’ exercise of power over public managers and undermine the capacity to prevent and manage financial distress. Poor accounting and weak control systems may facilitate this process. The high turnover of top management throughout a mayor’s term in office may reflect political pressure to force accounting rules and achieve flexibility to obtain the expected results or to correct poor financial performance.

Practical implications

To avert municipal bankruptcies, regulations should consider enforcing ex ante control by external oversight bodies, forbidding risky operations and limiting the spoils system for financial management positions and internal auditors.

Originality/value

Municipal defaults around the world have indicated that regulations and audits are ineffective to prevent local governments from failing. A full understanding of complex mutual interactions between the mechanisms of governance and the behaviors of politicians and managers can provide valuable insights to prevent local governments from failing.

Details

Contingency, Behavioural and Evolutionary Perspectives on Public and Nonprofit Governance
Type: Book
ISBN: 978-1-78560-429-4

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Article
Publication date: 18 October 2018

Fraz Inam, Aneeq Inam, Muhammad Abbas Mian, Adnan Ahmed Sheikh and Hayat Muhammad Awan

Considering the economic dimension of sustainability, the purpose of this paper is to analyze the risk of bankruptcy in the Pakistani firms of the non-financial sector…

Abstract

Purpose

Considering the economic dimension of sustainability, the purpose of this paper is to analyze the risk of bankruptcy in the Pakistani firms of the non-financial sector from years 1995 to 2017.

Design/methodology/approach

Three techniques were used which include multivariate discriminant analysis (MDA), logit regression and multilayer perceptron artificial neural networks. The accounting data of firms were selected one year before the bankruptcy.

Findings

Findings were obtained by comparing and analyzing the methods which show that neural networks model outperforms in the prediction of bankruptcy. They further conclude that profitability and leverage indicators have the power of discrimination in bankruptcy prediction and the best variables to predict financial distress are also found and indicated.

Practical implications

Practically, this study may help the firms to better anticipate the risks of getting bankrupt by choosing the right method and to make effective decision making for organizational sustainability.

Originality/value

Three different techniques were used in this research to predict the bankruptcy of non-financial sector in Pakistan to make an effective prediction.

Details

Journal of Economic and Administrative Sciences, vol. 35 no. 3
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 20 April 2010

Carolyn Sissoko

The purpose of this paper is to analyze the consequences of the “safe harbor” provisions of the US Bankruptcy Code that were enacted from 1984 through 2005 and that…

Abstract

Purpose

The purpose of this paper is to analyze the consequences of the “safe harbor” provisions of the US Bankruptcy Code that were enacted from 1984 through 2005 and that protect certain financial contracts from standard bankruptcy procedures.

Design/methodology/approach

Qualitative methods are used to evaluate whether these provisions of the Bankruptcy Code were successful in their stated goal of reducing systemic risk in the financial system. A model of systemic risk is presented verbally in order to frame the discussion.

Findings

Recent evidence indicates that the “safe harbor” provisions, in fact, destabilized the financial system by encouraging collateralized interbank lending, discouraging careful analysis of the credit risk of counterparties and increasing the risk that creditors will run on a financial firm.

Practical implications

This paper indicates that the rewriting of the Bankruptcy Code to favor financial firms has had a profoundly destabilizing effect on the financial system. To put the financial system on more secure foundations, the author proposes that large complex financial institutions be prohibited from posting collateral on over the counter derivative transactions and that the repo‐related bankruptcy amendments passed in 2005 be repealed.

Originality/value

This paper proposes an original framework for understanding systemic risk which drives the results in the paper.

Details

Journal of Financial Economic Policy, vol. 2 no. 1
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 12 March 2018

Velia Gabriella Cenciarelli, Giulio Greco and Marco Allegrini

The purpose of this paper is to explore whether intellectual capital affects the probability that a particular firm will default. The authors also test whether including…

Abstract

Purpose

The purpose of this paper is to explore whether intellectual capital affects the probability that a particular firm will default. The authors also test whether including intellectual capital performance in bankruptcy prediction models improves their predictive ability.

Design/methodology/approach

Using a sample of US public companies from the period stretching from 1985 to 2015, the authors test whether intellectual capital performance reduces the probability of bankruptcy. The authors use the VAIC as an aggregate measure of corporate intellectual capital performance.

Findings

The findings show that the intellectual capital performance is negatively associated with the probability of default. The findings also indicate that the bankruptcy prediction models that include intellectual capital have a superior predictive ability over the standard models.

Research limitations/implications

This paper contributes to prior research on intellectual capital and firm performance. To the best of the knowledge, this is the first study to show that the benefits of intellectual capital extend from superior performance to long-term financial stability. The research can also contribute to bankruptcy studies. By using a time frame covering decades, the findings suggest that intellectual capital performance measures can be included in bankruptcy prediction models and can effectively complement traditional performance measures.

Originality/value

This paper highlights that intellectual capital is associated with long-term financial stability and a lower bankruptcy risk. Firms realising the potential of their intellectual capital can produce a virtuous circle between higher performance and greater financial stability.

Details

Journal of Intellectual Capital, vol. 19 no. 2
Type: Research Article
ISSN: 1469-1930

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Article
Publication date: 12 September 2016

Mahdi Salehi and Mojdeh Davoudi Pour

Bankruptcy is the last phase of economic life of companies and has some impacts on all of the entity’s stakeholders. Thus, the prediction of bankruptcy is very important…

Abstract

Purpose

Bankruptcy is the last phase of economic life of companies and has some impacts on all of the entity’s stakeholders. Thus, the prediction of bankruptcy is very important. The inherent aim of preparing and developing financial accounting information is to provide a basis for economic decision-making, and any decision requires information acquisition, processing and data analysis as well as logical and correct interpretation of information. Developing models for predicting financial crisis and comparing the capabilities of existing models can help to alert management about ongoing activities and investors about economic decision for purchase shares or granting loan facilities to companies. So, the purpose of this study is the predict bankruptcy of listed companies on the Tehran Stock Exchange.

Design/methodology/approach

From the statistical methods’ perspective, the present research is classified as modeling and with respect to research methodology, it is a correlative-descriptive study in which the relationship between variables is analyzed based on the research objective. Predictive variables are the best ratios of cost of goods sold, non-operating revenues, net sales, predicted earnings per share (EPS) and real EPS.

Findings

Prediction of corporate bankruptcy crisis is one of the vital research areas. Predictive models are means for estimating the company’s future situation. Investors and creditors are highly willing to predict the bankruptcy crisis because the high costs associated with bankruptcy crisis will spoil the economy as a whole. On the other hand, this raises concerns among owners, and they are always seeking to find ways to preserve their capital through prediction of stocks continuing operations in the future. Having knowledge about bankruptcy or non-bankruptcy of automotive parts companies makes it possible to recognize weaknesses and strengths in the companies’ current performance and to make investment decisions.

Practical implications

Development of financial markets and, subsequently, creation of fierce competition has resulted in bankruptcy of many companies. Investors are always looking for predicting possible bankruptcy of a firm to prevent their investments risks because bankruptcy costs are high for investors, creditors, lenders and government agencies. Hence, they are seeking ways to estimate corporate bankruptcy. For this reason, over the past four decades, bankruptcy prediction has been enumerated as a key issue in companies and consequently because of its importance, many studies have been conducted to achieve the best model to predict bankruptcy.

Originality/value

Bankruptcy forecast is an economically important issue in every organization and company. Financial and accounting researchers are trying to offer financial models using various combinations of financial ratios with better measuring ability for performance and dividends payments as well as company continued activities. Bankruptcy prediction models are among financial analysis techniques in which the purpose of financial analysis and bankruptcy forecasting is recognition of efficiency and management executive performances. Moreover, the analysis of stock value by shareholder is another application of such research results. Basically, shareholders are interested in knowing the future status of the companies that are going to buy. In this way, shareholders use this method of analysis to estimate future activity or inactivity of firms.

Details

International Journal of Law and Management, vol. 58 no. 5
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 2 March 2015

Martin Aruldoss, Miranda Lakshmi Travis and V. Prasanna Venkatesan

Bankruptcy is a financial failure of a business or an organization. Different kinds of bankruptcy prediction techniques are proposed to predict it. But, they are…

Abstract

Purpose

Bankruptcy is a financial failure of a business or an organization. Different kinds of bankruptcy prediction techniques are proposed to predict it. But, they are restricted as techniques in predicting the bankruptcy and not addressing the associated activities like acquiring the suitable data and delivering the results to the user after processing it. This situation demands to look for a comprehensive solution for predicting bankruptcy with intelligence. The paper aims to discuss these issues.

Design/methodology/approach

To model Business Intelligence (BI) solution for BP the concept of reference model is used. A Reference Model for Business Intelligence to Predict Bankruptcy (RMBIPB) is designed by applying unit operations as hierarchical structure with abstract components. The layers of RMBIPB are constructed from the hierarchical structure of the model and the components, which are part of the reference model. In this model, each layer is designed based on the functional requirements of the Business Intelligence System (BIS).

Findings

This reference model exhibits the non functional software qualities intended for the appropriate unit operations. It has flexible design in which techniques are selected with minimal effort to conduct the bankruptcy prediction. The same reference model for another domain can be implemented with different kinds of techniques for bankruptcy prediction.

Research limitations/implications

This model is designed using unit operations and the software qualities exhibited by RMBIPB are limited by unit operations. The data set which is applied in RMBIPB is limited to Indian banks.

Originality/value

A comprehensive bankruptcy prediction model using BI with customized reporting.

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Article
Publication date: 14 February 2019

Luis Raúl Rodríguez-Reyes, Carlos Omar Trejo-Pech and Mireya Pasillas-Torres

The Mexican housing industry was hindered by a shrinking market and tighter financial conditions related to the Great Recession. Moreover, in 2013, a major change in…

Abstract

Purpose

The Mexican housing industry was hindered by a shrinking market and tighter financial conditions related to the Great Recession. Moreover, in 2013, a major change in public policy further modified this industry’s environment. Mexico’s new urban development policy supported inner-city new housing, in contrast to the previous policy that incentivized sprawling. Three out of eight publicly traded housing companies filed for bankruptcy protection in 2013-2014, arguably because of the effects of the Great Recession and the new housing policy. The purpose of this study is to identify firm-level factors that caused some firms to file for bankruptcy protection.

Design/methodology/approach

Three approaches were used to analyze the housing industry in Mexico from 2006 to 2015. First, a policy analysis focused on the new housing policy and its consequences for housebuilding companies. Second, a financial analysis of the two economic shocks was performed in search for the transmission mechanisms in the companies’ financial metrics. Third, a retrospective analysis using the Fisher’s exact test was used to identify variables statistically associated with companies filing for bankruptcy protection.

Findings

There are two features significantly associated with bankruptcy protection: increasing market share while being vertically integrated, as a response to the Great Recession, and the relative magnitude of the loss on firms’ inventory value due to the new public policy. Neither Altman’s Z-score values nor firm size or degree of integration are significantly related to bankruptcy.

Research limitations/implications

The small sample size presented a challenge, as most statistical methodologies require large samples; however, this was overcome by using the Fisher’s exact test.

Originality/value

The main contribution of this paper is the statistical identification of the possible causes for bankruptcy protection in Mexico amongst homebuilding firms in 2013 and 2014, which have not previously been reported in the literature.

Details

International Journal of Housing Markets and Analysis, vol. 12 no. 2
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 19 June 2019

Elizabeth Cooper and Hatice Uzun

This paper aims to examine corporate social responsibility (CSR) and corporate bankruptcy. Specifically, the authors ask the following research questions: Does CSR play a…

Abstract

Purpose

This paper aims to examine corporate social responsibility (CSR) and corporate bankruptcy. Specifically, the authors ask the following research questions: Does CSR play a role in determining the likelihood of bankruptcy? Does CSR explain the difference in the probability of that firm eventually reorganizing and emerging from bankruptcy?

Design/methodology/approach

The authors address these questions by testing three CSR theories using a sample of 78 firms that filed for Chapter 11 bankruptcy during the period 2007 to 2014 along with a matched sample of firms that did not.

Findings

Overall, the findings indicate that stronger CSR firms are less likely to become bankrupt relative to weaker CSR firms, all else being equal. This result is in line with the stakeholder theory of CSR. However, results do not support the conjecture that CSR matters when it comes to bankruptcy emergence. While CSR seems to influence whether a company experiences bankruptcy in the first place, having strong CSR does not seem to help a firm once it has filed for Chapter 11.

Research limitations/implications

This paper extends the existing CSR literature but looks at CSR not from the angel of financial “success” but rather from financial “failure”.

Practical implications

The results could potentially help academics and practitioners alike in seeking understanding and reason behind CSR involvement and bankruptcy avoidance and success.

Originality/value

This is the first paper to test whether CSR plays a role in bankruptcy. The authors use a recent sample of firms with CSR scores that experienced a bankruptcy and a matched sample of CSR-scored firms that did not experience bankruptcy.

Details

Studies in Economics and Finance, vol. 36 no. 2
Type: Research Article
ISSN: 1086-7376

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