Assessment of bankruptcy risks in Czech companies using regression analysis

Abstract

Bankruptcy is an important topic in academic research and practice. It is a burning issue worldwide in the current COVID-19 situation. The aim of this study is to examine the financial risks of Czech companies. By employing the stepwise regression technique to estimate the financial risks, the p-values of all selected 15 financial ratios (explanatory variables) were calculated. If the p-value of the variable is more than the level of significance, the particular variable is removed from the model and another regression model is calculated. The findings from the stepwise regression revealed that return on capital, current ratio, net working capital turnover rate, and current assets turnover rate have a positive influence on company’s financial health. On the contrary, return on capital employed, asset turnover rate, inventory turnover rate, fixed assets turnover rate, and debt to equity ratio negatively impact the company’s financial health. The findings of this study will be fruitful for managers, policymakers, and investors of the companies to estimate and assess financial risks. AcknowledgmentsThis study is supported by the Internal Grant Agency (IGA) in Tomas Bata University in Zlin, the Czech Republic, under the projects No IGA/FAME/2021/008 and IGA/FAME/2021/014.

Keywords

• COVID-19
• Cribis database
• Czech firms
• financial ratios
• stepwise regression