Family businesses and predictability of financial strength: a Hungarian study

  • Received April 25, 2020;
    Accepted June 29, 2020;
    Published July 6, 2020
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ppm.18(2).2020.39
  • Article Info
    Volume 18 2020, Issue #2, pp. 476-489
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This work is licensed under a Creative Commons Attribution 4.0 International License

The aim of this study is to examine how bankruptcy prediction models forecast financial strength for family businesses. Three predictive tests are used to study financial strength for three consecutive years (2016, 2017 and 2018) for a sample of 462,200 active Hungarian companies using the Amadeus database and expert data. Complex statistical model tests for credit assessment (bankruptcy predictions) are performed by size and ownership of the companies. It is found that the revised Altman model is impeded by a superfluous high weighting on net working capital; therefore, IN05 Quick Test predicted better chances for businesses in generating cash flows in a small emerging economy. By re-formulating the Bankruptcy Index of Karas and Režňáková and refining its coefficients, the modified Bankruptcy Index is more robust for predicting the financial health of family businesses on a cash flow basis. The test results of this modified Bankruptcy Index confirm the relative advance of family businesses in creating added value for owners. Practical implications arise from a management perspective: family businesses work better with predictability of survival in accordance with the model; therefore, their ability to adapt to financial constraints caused by crises is also more promising.

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    • Figure 1. The three patterns of failure
    • Table 1. Altman Z-scores of the total of active Hungarian companies grouped by size
    • Table 2. Altman Z-scores of the total of active Hungarian companies grouped by size and differentiated by ownership
    • Table 3. IN05 values of the total of active Hungarian companies grouped by size
    • Table 4. IN05 values of the total of active Hungarian companies grouped by size and differentiated by ownership
    • Table 5. Bankruptcy Index values of the total of active Hungarian companies grouped by size
    • Table 6. Bankruptcy Index values of the total of active Hungarian companies grouped by size and differentiated by ownership
    • Conceptualization
      Judit Sági
    • Data curation
      Judit Sági
    • Formal Analysis
      Judit Sági
    • Methodology
      Judit Sági
    • Writing – original draft
      Judit Sági, Nick Chandler
    • Investigation
      Nick Chandler
    • Resources
      Nick Chandler
    • Visualization
      Nick Chandler
    • Validation
      Csaba Lentner
    • Supervision
      Csaba Lentner
    • Writing – review & editing
      Csaba Lentner