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Analysis Of Romanian Small And Medium Enterprises Bankruptcy Risk

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  • Kulcsar Edina

    (Universitatea din Oradea, Facultatea de Stiinte Economice,)

Abstract

Considering the fundamental role of small and medium enterprises in Romanian economy, this paper aims to quantify the level of their bankruptcy risk for 2009 and 2012 period, after debuting of financial crisis. The main reason of selecting this type of companies is that they represent the backbone of national economy. They have an indispensable role, because they offer jobs for great part of population and their contribution for GDP stimulation is considerable. In this paper it was applied two default risk models, namely the well known Altman's Z-score model, based on five financial ratios and a bankruptcy predictor model developed by Teti et. al (2012) used firstly exclusively for Italian small and medium-sized enterprise for 2006-2009 period. The model proposed by Teti et. is based on the investigation of financially distressed and financially non-distressed Italian small and medium-sized enterprises during the financial crisis by using a discriminant analysis model. They conclude that there are four financial ratios, which characterized well the small and medium-sized enterprises bankruptcy risk. These variables are financial ratios, like: Debt/Total Assets, Return on Sales (ROS), EBIT/Interest Expenses and Working capital/EBIDTA. They consider that small and medium-sized enterprises require a particular approach in terms of bankruptcy risk analysis. In present study I try to compare the efficiency of traditional bankruptcy risk model with a small and medium-sized specific model. The necessary database for present analysis is ensured by simplified financial reports of 120 small and medium-sized enterprises registered in Bihor County. The selected enterprises are operating in manufacturing industry (21,67%) and trading (78,33%). Present investigation has an important value in actual economic background, where the healthiness and sustainability of small and medium-sized enterprises is a great issue. The results of study shows contradictory results after implementing above mentioned methods, so while after Altman model application, the investigated firms are non financially distressed, in case of second model applying the great part of firms have medium financial problems.

Suggested Citation

  • Kulcsar Edina, 2014. "Analysis Of Romanian Small And Medium Enterprises Bankruptcy Risk," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 928-937, July.
    • Handle: RePEc:ora:journl:v:1:y:2014:i:1:p:928-937
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    References listed on IDEAS

    as
    1. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    2. Edward I. Altman & Gabriele Sabato, 2013. "MODELING CREDIT RISK FOR SMEs: EVIDENCE FROM THE US MARKET," World Scientific Book Chapters, in: Oliviero Roggi & Edward I Altman (ed.), Managing and Measuring Risk Emerging Global Standards and Regulations After the Financial Crisis, chapter 9, pages 251-279, World Scientific Publishing Co. Pte. Ltd..
    3. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    4. Mossman, Charles E, et al, 1998. "An Empirical Comparison of Bankruptcy Models," The Financial Review, Eastern Finance Association, vol. 33(2), pages 35-53, May.
    5. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    corporate bankruptcy; small and medium-sized enterprise; credit risk; Z-score; discriminant analysis model;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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