BANKRUPTCY RISK AND SHARE PRICES: A CASE STUDY ON ENERGY COMPANIES IN KUWAIT

Autori

  • Musaed S. AlAli Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET), Kuwait
  • Ibraheem T. AlAskar Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET), Kuwait
  • Eman O. AlForaih Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET), Kuwait

DOI:

https://doi.org/10.46827/ejefr.v8i5.1834

Ključne reči:

Zmijewski x-score model, risk perception, financial distress, financial soundness, bankruptcy risk, energy companies, Kuwait Stock Exchange (KSE)

Apstrakt

This study aims to investigate how investors' perceptions of risk impact the stock prices of energy companies listed on the Kuwait Stock Exchange (KSE) from 2016 to 2023. Investors' belief in the future financial stability of the companies they invest in influences their risk perception. Therefore, if investors hold pessimistic views, they will decrease their investment in these companies, causing share prices to drop, and vice versa. The Zmijewski x-score model is utilized in this study as a measure of risk to assess the financial stability of Kuwaiti energy companies and its impact on their stock prices. The study employs ordinary least square regression (OLS) to analyze the correlation between the x-score and share prices. Results from this research indicated that there was no statistically significant relation between Zmijewski's x-score and stock price and that investors look at other factors when choosing their investments. This is evident because the company with the greatest bankruptcy risk in the following two years also had the second-highest share price.

 

JEL: G1, G4, M21

 

Article visualizations:

Hit counter

Biografije autora

  • {$ime} {$affilijacija}

    Dr. Musaed S. AlAli (associate professor) holds a PhD degree in Finance from RMIT University in Melbourne, Australia, a master’s degree from Middle Tennessee State University in the United States, and a bachelor degree in finance and banking from Kuwait University. Currently he is the head of Insurance and Banking department in the college of business studies at The Public Authority for Applied Education and Training (PAAET), Kuwait.

  • {$ime} {$affilijacija}

    Dr. Ibraheem T. AlAskar (assistant professor) holds a PhD degree in Finance from RMIT University in Melbourne, he is a faculty member at the Insurance and Banking department in the college of business studies at The Public Authority for Applied Education and Training (PAAET), Kuwait.

  • {$ime} {$affilijacija}

    Eman O. AlForaih (instructor) holds a master’s degree in risk management and is a faculty member at the Insurance and Banking department in the college of business studies at The Public Authority for Applied Education and Training (PAAET), Kuwait.

Reference

Agarwal, V., & Taffler, R. (2008). Comparing the performance of market-based and accounting-based bankruptcy prediction models. Journal of banking & finance, 32(8), 1541-1551. https://doi.org/10.1016/j.jbankfin.2007.07.014

AlAli, M. S. (2018). The application of Altman’s Z-Score model in determining the financial soundness of healthcare companies listed in Kuwait Stock Exchange. International Journal of Economic Papers, 3(1), 1-5. Retrieved from https://www.researchgate.net/publication/325265054_The_Application_of_Altman's_Z-Score_Model_in_Determining_the_Financial_Soundness_of_Healthcare_Companies_Listed_in_Kuwait_Stock_Exchange

AlAli, M. S., Bash, A. Y., AlForaih, E. O., AlSabah, A. M., & AlSalem, A. S. (2018). The adaptation of Zmijewski Model in appraising the financial distress of mobile telecommunications companies listed at Boursa Kuwait. Management, 5(4), 129-136. Retrieved from https://www.researchgate.net/publication/329131351_The_Adaptation_of_Zmijewski_Model_in_Appraising_the_Financial_Distress_of_Mobile_Telecommunications_Companies_Listed_at_Boursa_Kuwait

AlKulaib, Y. A., & AlAli, M. S. (2019). Exploring the Probability of Bankruptcy for Conventional Insurance Companies Listed at Kuwait Stock Exchange and its Effect on Their Share Prices. The Journal of Social Sciences Research, 5(9), 1341-1346. http://dx.doi.org/10.32861/jssr.59.1341.1346

AlSaedi, A., & AlTimimi, S. A. (2018). The relationship between financial failure and market value: An empirical study using a sample of industrial firms listed at Qatar Stock Exchange. Academy of Accounting and Financial Studies Journal, 22(5), 1-9. Retrieved from https://www.abacademies.org/articles/the-relationship-between-financial-failure-and-market-value-an-empirical-study-using-a-sample-of-industrial-firms-listed-at-qatar-7577.html

Altman E, Iwanicz-Drozdowska M, Laitinen E, Suvas A. (2017). Distressed Firm and Bankruptcy Prediction in an International Context: A Review and Empirical Analysis of Altman's Z-Score Model. Journal of International Financial Management & Accounting, 28(2), 131-171. Available at SSRN: https://ssrn.com/abstract=2536340 or http://dx.doi.org/10.2139/ssrn.2536340

Aminian, A., Mousazade, H., & Khoshkho, O. I. (2016). Investigate the ability of bankruptcy prediction models of Altman and Springate and Zmijewski and Grover in the Tehran Stock Exchange. Mediterranean Journal of Social Sciences, 7(4), 208-214. http://dx.doi.org/10.5901/mjss.2016.v7n4s1p208

Avenhuis, O. J. (2013). Testing the generalizability of the bankruptcy prediction models of Altman, Ohlson and Zmijewski for Dutch listed and large non-listed firms (Master's thesis, University of Twente). Retrieved from https://essay.utwente.nl/64326/

Cinca, C. S., Molinero, C. M., & Larraz, J. G. (2005). Country and size effects in financial ratios: A European perspective. Global Finance Journal, 16(1), 26-47. Retrieved from http://dx.doi.org/10.1016/j.gfj.2005.05.003

Djamaluddin, S., Putridan, M. J., & Ali, H. (2017). Financial distress comparative analysis of Japanese electronic manufacturer after financial global crisis 2008 using Altman, Ohlson, and Zmijewski model. The International Journal of Business & Management, 5(7), 131-141. Retrieved from https://www.internationaljournalcorner.com/index.php/theijbm/article/view/124277

Elloumi, F., & Gueyié, J. P. (2001). Financial distress and corporate governance: an empirical analysis. Corporate Governance: The international journal of business in society, 1(1), 15-23. Retrieved from https://www.emerald.com/insight/content/doi/10.1108/14720700110389548/full/html

Faello, J. (2015). Understanding the limitations of financial ratios. Academy of accounting and financial studies journal, 19(3), 75-85. Retrieved from https://www.researchgate.net/publication/330988084_Understanding_the_limitations_of_financial_ratios

Fatmawati, M. (2012). Penggunaan the Zmijewski Model, the Altman Model, dan the Springate Model sebagai prediktor delisting. Jurnal Keuangan dan Perbankan, 16(1), 56-65. https://dx.doi.org/10.26905/jkdp.v16i1.1046

Grice Jr, J. S., & Dugan, M. T. (2003). Re-estimations of the Zmijewski and Ohlson bankruptcy prediction models. Advances in Accounting, 20, 77-93. https://doi.org/10.1016/S0882-6110(03)20004-3

Husein, M. F., & Pambekti, G. T. (2014). Precision of the models of Altman, Springate, Zmijewski, and Grover for predicting the financial distress. Journal of Economics, Business, and Accountancy Ventura, 17(3), 405-416. https://doi.org/10.14414/jebav.v17i3.362

Liu, C., O'Farrell, G., Wei, K. K., & Yao, L. J. (2013). Ratio analysis comparability between Chinese and Japanese firms. Journal of Asia Business Studies, 7(2), 185-199. Retrieved from https://www.emerald.com/insight/content/doi/10.1108/15587891311319468/full/html#:~:text=Chinese%20firms%20have%20lower%20liquidity,Japanese%20firms%20(at%200.01).

Ohlson, J. A. (1980). Financial Ratios and the Probabilistic Prediction of Bankruptcy. Journal of Accounting Research, 18(1), 109–131. https://doi.org/10.2307/2490395

Platt, H., & Platt, M. (2006). Understanding differences between financial distress and bankruptcy. Review of Applied Economics, 2(2), 141–157. Retrieved from https://ideas.repec.org/a/ags/reapec/50146.html

Suresh, N., Ligori, A., Khan, S., & Thoudam, P. (2019). Predicting financial distress of Bhutan Telecom Limited. International Journal of Innovative Technology and Exploring Engineering, 8(8s3), 94-99. Retrieved from https://www.researchgate.net/publication/368461305_Predicting_Financial_Distress_of_Bhutan_Telecom_Limited

Uwah, U., Aji, I. A., & Iniabasi, E. (2023). Accounting ratios and false financial statements detection: evidence from Nigerian quoted companies. AKSU Journal of Administration and Corporate Governance (AKSUJACOG), 3(1), 61-75. Retrieved from https://aksujacog.org.ng/articles/23/04/accounting-ratios-and-false-financial-statements-detection-evidence-from-nigerian-quoted-companies/aksujacog_03_01_05.pdf

Wadhwa, B. (2019). Financial ratios: The precarious core of fundamental analysis. Frontiers Journal of Accounting and Business Research, 1(1), 33-35. Retrieved from https://scholar.google.co.in/citations?view_op=view_citation&hl=en&user=TrCGgfYAAAAJ&citation_for_view=TrCGgfYAAAAJ:abG-DnoFyZgC

Ward, T. J., Foster, B. P., & Woodroof, J. (2006). Estimated operating cash flow, reported cash flow from operating activities, and financial distress. Advances in Quantitative Analysis of Finance and Accounting, 4, 97-120.

Zmijewski, M. E. (1984). Methodological issues related to the estimation of financial distress prediction models. Journal of Accounting Research, 22, 59-82. Retrieved from https://doi.org/10.2307/2490859.

Preuzimanja

Objavljeno

2024-10-16

Broj časopisa

God. 8 Br. 5 (2024)

Rubrika

Articles