Prediction of Bankruptcy Risk: Evidence from Listed Manufacturing Companies in Sri Lanka

Abstract

The past experience in number of industries evidenced that even healthy companies can bankrupt and abolish stakeholder confidence while creating a significant damage to country’s economy. Though stakeholders are vulnerable, how they can assess the bankruptcy level is another question that researchers are trying to answer. This creates an urgency to find out the bankruptcy level of manufacturing companies in Sri Lanka using an appropriate model and publicly available information in order to protect stakeholders. Therefore, the objective of the study is to investigate the degree to which bankruptcy risk can be predicted from the business performance of listed manufacturing companies in Sri Lanka. Quantitative approach has been applied in the study align with the ZETA model. Secondary data was used in this study which gathered through the annual reports and the data was analysed through e-views 6 software. The study found that bankruptcy risk can be identified from financial performance and non-financial performance. The finding of the study benefits the different stakeholders to make decisions relevant to manufacturing firms in Sri Lanka.