The aim of this master thesis is to verify the classification methods of current models. The basis for the research part of the thesis is the definition of the financial situation in a company, which is created on the grounds of relevant literature and assumptions related to the negative financial situation of a company. According to this definition, an enterprise with no financial difficulties must achieve positive profits for a five-year period related to the value of the assets at the end of the reporting period, and during the reporting period the entity must not achieve a negative or zero cash-flow. Afterwards, the current classification models, which determine the financial situation of the company, were examined. The application of the models took place on data from companies belonging to different sectors to avoid distorted results. Selected sectors are not similar on purpose. The total reliability of classification was examined on selected classification models on the classification matrices basis for each of the analyzed sectors. The results of the current classification methods were unsatisfactory in terms of the number of correct classifications. The main benefit of this thesis was to create a predictive state model of the dependent variable. The model indicates whether the analyzed enterprise achieves a five-year return ratio and the asset size reaches values higher or lower than the value selected. This value may be the industry average of the mentioned indicator. The suggested linear model has been tested on a test(control) enterprise database.

This study examines the effect of corporate liquidity and investor protection on the relation between financial distress and equity returns using a European sample over the 2002-2016 period. The results show that returns are hump-shaped and decreasing for increasing default risk. This can be rationalized by corporate liquidity indicating that higher cash holdings decrease liquidity risk. Moreover, firms in countries with high investor protection exhibit a more severe decrease of returns when default risk increases relative to firms in countries with low investor protection. This is because of the legal system that allows investors to renegotiate upon distress and to more accurately price equities.

Dans la conjoncture économique actuelle un nombre croissant de firmes se trouvent confrontées à des difficultés économiques et financières qui peuvent, dans certains cas, conduire à la faillite. En principe, les difficultés ne surviennent pas brutalement, en effet, avant qu’une entreprise soit déclarée en faillite, elle est confrontée à des difficultés financières de gravité croissante : défaut de paiement d’une dette, insolvabilité temporaire, pénurie de liquidité, etc. L’identification des causes de la défaillance n’est pas évidente, puisqu’on ne saurait énumérer de manière limitative les facteurs qui la provoquent. Les causes sont multiples et leur cumul compromet d’autant plus la survie de l’entreprise. L’importance de ce phénomène et son impact sur l’ensemble de l’économie justifie le besoin de le comprendre, l’expliquer en analysant les causes et les origines. L’objectif de notre étude est de classer les entreprises en difficulté selon leur degré de viabilité et de comprendre les causes de la dégradation de leur situation. Nous effectuerons une comparaison entre trois modèles (Analyse discriminante linéaire, le modèle Logit et la régression PLS) ce qui nous permettra à partir des taux de bon classement obtenus, de choisir le meilleur modèle tout en précisant l’origine et les causes de ces défaillances. / In actual economic situation an increasing number of firms are facing economic and financial difficulties which can, in certain cases, drive to failure. In principle, difficulties do not happen suddenly, in effect, before a firm is declared bankrupt, it is confronted to financial difficulties of growing seriousness: default in payment of a debt, temporary insolvency, scarceness of liquidity, etc. Identifying the causes of the failure is not obvious, since one can not exhaustively enumerate the factors that cause it. The causes are multiple and overlapping compromise even more the company's survival. The importance of this phenomenon and its impact on the overall economy justifies the need to understand, explain it by analyzing the causes and origins The aim of our study is to classify firms in trouble according to their degree of viability and to understand the causes of the deterioration of their situation. We will do a comparison between three models (linear differential Analysis, the model Logit and decline PLS) what will allow us from the rates of good classification acquired, to choose the best model while specifying origin and reasons of these faults.

The aim of this thesis is to evaluate the impact of Basel III on Czech banks and to compare the effectiveness of capital ratios in predicting bank distress. After a short introduction, in the second chapter we estimate the impact of tightened Basel III capital regulation on lending spreads in the Czech banking sector. In this chapter we conclude that the tightened capital regulation will not lead to more expensive borrowing in the Czech Republic mainly because the banking sector has been well-capitalized. In the third chapter we identify the strategies that Czech banks adopted in order to significantly increase their capital ratios between 2009 and 2013. Our analysis shows that retained earnings have played a major role in increasing the average capital adequacy of Czech banks. In addition, the Czech banks have decreased their average asset risk to further strengthen the overall capital adequacy ratio. In the last chapter, using a dataset on bank distress in European banks during 2008-2012, we compare the performance of risk-weighted capital ratios and simple leverage capital ratios to predict bank distress. Our results suggest that simple leverage ratios can perform better than complex risk-weighted capital ratios when predicting bank distress. While such a finding is not conclusive, it suggests that more complex risk modeling does not always mean better risk modeling.

In the diploma thesis we are examining possibilities of utilization of financial standing models and bankruptcy models for the purpose of prediction of financial distress of a company. We start the analysis with a broad description of methods provided by financial analyses used for prediction of the financial distress, followed by a more particular investigation into the problematics of financial standing and bankruptcy models. In the thesis we aim to define 9 of these models including their variations followed by application onto four companies in the time scale of five years up front the incoming financial distress. Whilst applying the models we will have a closer look at the discrepancies coming from the different nature of the predictive formulas, meanwhile observing how the key changes in financial statements transfer into the scores. Moreover, we will try to point out the key elements causing deformation in the relevance of the models. In the conclusion we will summarize the findings and confront the assumptions.

With the onset of globalisation and markets being exposed to the effects of global recessions and economic downturns, the fundamental principles on which business operates have changed substantially. Some businesses have thrived in this new context, whilst others have struggled to remain competitive as is evident by the increasing trend of corporate failures and the considerable increase in liquidations. As a result the concept of corporate renewal and business rescue has become an integral element of the strategy of organisations, particularly those that are financially distressed.South Africa responded through the introduction of the new South African Companies Act 71 of 2008, which came into effect in May 2011 and contained a new chapter called Chapter 6: Business rescue and Compromise with Creditors. However one of the critical components of the success of the business rescue, which has been largely unsuccessful to date, involves securing turnaround finance (post-commencement finance) to restore the company‘s financial health.The aim of this study was to find substantive evidence that the presence of post-commencement finance in South African companies does not exist, as opposed to the findings of international research, as well as the exploration and confirmation of factors that result in the successful raising of post-commencement financing.To this end, qualitative research with an exploratory design was conducted. Eighteen leading South African business rescue experts were interviewed to uncover their unique insights regarding this dilemma. The rich data that was unearthed was analysed using content and narrative analysis against the propositions derived from the literature. The empirical findings confirmed that the current level of PCF in South Africa is non-existent due to various reasons. A host of critical success factors and reasons for disinterest were identified which formed the basis of a framework informing the best practice guidelines when raising PCF. Some of these include many of unintended consequences of the newness of the Act, business rescue processes being left too late, the poor financial state of the business that eventually files for rescue and the significant impact on the outcome by some of the key players (e.g. the fiannciers and business rescue practitioners). These guidelines will solve the dilemma under review by benchmarking them to international best practice.Several important areas for future research emerged, alongside the recommendations of insights gained outlined for the various stakeholders. / Dissertation (MBA)--University of Pretoria, 2012. / Gordon Institute of Business Science (GIBS) / unrestricted

The ability to measure the financial health of a company is becoming an increasingly serious issue. One only needs to think of the widely published irregularities in companies such as Enron, Parmalat and Macmed to grasp something of the magnitude of the losses and other problems that investors can face if they do not have the ability to “predict” possible problems. There are individuals who are constantly identifying new and ingenious ways to deceive their customers, investors, the government and others. It is important for parties with an interest in a company to devise new ways to identify how financial analyses can be used to protect their interests. Managers are primarily responsible for the prevention and identification of accounting irregularities. Unfortunately, at the same time, they may also be assumed to be the primary perpetrators of accounting irregularities, because they are in a position to manipulate accounting records and bypass control measures more easily than anyone else in a company. The main aim of this study is to determine whether financial analysis and interpretation can be applied by interested parties to measure financial health and by implication identify accounting irregularities. Proof that this is possible has the potential to be used in analyses, by all parties with an interest in a company, to determine financial health and to identify irregularities in the financial statements. The study begins with a literature review, which provides an explanation of accounting irregularities and related matters, as well as an overview of previous uses of financial analyses to determine whether such analyses are useful in the identification of irregularities in the financial statements.   The objectives of the study are as follows: <ul> <li> An investigation into the characteristics, as identified by researchers locally and abroad, that are displayed by companies with a higher risk of or occurrence of accounting irregularities.</li> <li> A survey of the media by means of a literature review to identify case study companies that had allegations of accounting irregularities against them.</li> <li> The analysis of the case study companies in a quantitative and qualitative way to determine whether the characteristics that are identified as part of the first objective hold true in practice.</li> <li> Statistical analyses of the share price data of the case study companies in the form of an event study, a regression analysis and a structural break analysis to determine when and under what circumstances significant changes happened.</li> <li> Conduct a survey involving the creators and the users of financial statements in order to observe their experience regarding the usefulness of financial statements to reveal financial health. This is done by means of questionnaires that are analysed statistically, designed to derive conclusions of what practitioners tend to experience in practice and what their feelings are regarding the use of financial statements and accounting data in an analysis of the financial health of a company.</li></ul> On the basis of the case studies, nine of 18 identified characteristics were found to be useful in the identification of accounting irregularities by parties other than managers. They are: 1. company age; 2. company culture; 3. debt levels; 4. directors’ behaviour and character; 5. financial distress; 6. industry or sector; 7. liquidity; 8. management’s behaviour and character; and 9. remuneration policies. A further eight additional characteristics were also identified as useful in the identification of accounting irregularities. They are: 1. acquisitions, mergers and other restructuring; 2. dividends; 3. opposite movements from the industry or sector; 4. period before irregularities are detected; 5. “preparing” interested parties for the annual report; 6. share price changes; 7. significant changes; and 8. tax. The results of the review of the companies’ financial information are supplemented with a statistical analysis of the companies’ share price data as well as a questionnaire that are submitted to the users and compilers of financial statements. The aim of the first statistical analysis, consisting of event studies, regression analyses and structural break analyses, is to support the findings regarding the characteristics of companies with increased risk of accounting irregularities. The questionnaire set out to relate the subjective opinions of the users and compilers of financial statements with the findings of the study. The results of the study provide proof that interested parties have the ability to use the identified company characteristics to indicate increased accounting irregularity risk. / Thesis (DCom)--University of Pretoria, 2012. / Financial Management / unrestricted

There are increased calls for corporations to act responsibly. Those responsibilities exceed the classical assumption that the only responsibility of the firm is its shareholders and ultimately to maximize their wealth. Any social issue participation has been described as charity or squandering of resources at the expense of the shareholders. According to the Stakeholder theory, firms should consider every stakeholder that is affected by the company and stakeholder management can be a source of value. The risk reduction hypothesis is especially interesting in the context of corporate sustainability. There have been multiple studies that have explored the relationship between corporate sustainability performance and the risk of financial distress. Like those studies, this study found that corporate sustainability performance is negatively associated with the risk of financial distress. Thereby answering the research question proposed by the authors: “Does corporate sustainability performance affect the risk of financial distress?”. Companies with higher sustainability performance will experience less risk and engagement in those activities works as a risk reduction tool. Different levels of sustainability performance have different effect on the risk, which should be considered by investors and management. It should inspire investors to incorporate sustainable companies in their investment portfolios. Furthermore, the thesis contributes to the field of knowledge by analyzing the empirical results using the Stakeholder Theory, the Shareholder Theory, the Legitimacy Theory, the Resource-based view, the Agency Theory and the Stewardship Theory. The study provides evidence of an increasing importance of sustainability performance and suggests that firms can use sustainability performance to mitigate risk. This is a panel data analysis including approximately 16,000 firm-year observations. The study takes a deductive approach, and the research is conducted under a positivist paradigm. The data is tested through conducting OLS regressions with fixed effects. The results of the statistical testing have been compared to previous studies and other relevant literature.

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This thesis explores three important issues in financial distress and corporate bankruptcy: bankruptcy venue choice and creditor recovery, the efficiency of Chapter 11 corporate bankruptcy and distressed exchanges, and the bankruptcy ripple effect on peer firms’ investment policy. / Dissertation / Doctor of Philosophy (PhD) / This thesis explores three important issues in financial distress and corporate bankruptcy: bankruptcy venue choice and creditor recovery, the efficiency of Chapter 11 corporate bankruptcy and distressed exchanges, and the bankruptcy ripple effect on peer firms’ investment policy.