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Determinants of Financial Distress: What Drives Bankruptcy in a Transition Economy? The Czech Republic Case

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Author Info
Lubomír Lízal

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Abstract

The main factors influencing the probability of bankruptcy are analyzed on Czech Republic 1993-1999 firm data. Basic models of the bankruptcy are compared: neoclassical, financial and corporate governance. The corporate governance hypothesis does not receive support in the ownership but the indicator of voucher privatization supports it. The initial conditions from early 90's were not the driving the financial distress. The voucher-scheme privatization results in poorer corporate governance. These firms are more likely to go bankrupt, ceteris paribus. On the other hand, former large SOEs are less likely to bankrupt than firms with a similar debt structure - this is an evidence of soft budget constraints.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 451.

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Date of creation: 01 Jan 2002
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Handle: RePEc:wdi:papers:2002-451

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Related research
Keywords: Banking and Finance; Corporate Governance; Privatization; Czech Republic; bankruptcy; privatization; soft budget constraint; financial distress;

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Find related papers by JEL classification:
P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
K2 - Law and Economics - - Regulation and Business Law

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Scott, James, 1981. "The probability of bankruptcy: A comparison of empirical predictions and theoretical models," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 317-344, September. [Downloadable!] (restricted)
  2. Stijn Claessens & Simeon Djankov, 1999. "Ownership Concentration and Corporate Performance in the Czech Republic," William Davidson Institute Working Papers Series 227, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  3. Asquith, Paul & Gertner, Robert & Scharfstein, David, 1994. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 625-58, August. [Downloadable!] (restricted)
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  4. Claessens, Stijn & Djankov, Simeon, 1999. "Enterprise performance and management turnover in the Czech Republic," European Economic Review, Elsevier, vol. 43(4-6), pages 1115-1124, April. [Downloadable!] (restricted)
  5. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," CEPR Discussion Papers 2128, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Claessens, Stijn, 1997. " Corporate Governance and Equity Prices: Evidence from the Czech and Slovak Republics," Journal of Finance, American Finance Association, vol. 52(4), pages 1641-58, September. [Downloadable!] (restricted)
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  7. Morris Bornstein, 1999. "Framework Issues in the Privatisation Strategies of the Czech Republic, Hungary and Poland," Post-Communist Economies, Taylor and Francis Journals, vol. 11(1), pages 47-77, March. [Downloadable!] (restricted)
  8. Dalia Marin & Monika Schnitzer, 1999. "Disorganization and Financial Collapse," William Davidson Institute Working Papers Series 285, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  9. Aghion, Philippe & Blanchard, Olivier & Burgess, Robin, 1994. "The behaviour of state firms in eastern Europe, pre-privatisation," European Economic Review, Elsevier, vol. 38(6), pages 1327-1349, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dietrich Earnhart & Lubomir Lizal, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CERGE-EI Working Papers wp203, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  2. Jarko Fidrmuc & Christa Hainz, 2009. "Default Rates in the Loan Market for SMEs:Evidence from Slovakia," Ifo Working Paper Series Ifo Working Paper No. 72, Ifo Institute for Economic Research at the University of Munich. [Downloadable!]
    Other versions:
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