DETERMINANTS OF FINANCIAL FAILURE RISK: AN ECONOMETRIC STUDY USING THE Z-ALTMAN AND SPRINGATE MODELS

Abstract

Objective: The main objective of this study is to identify the determinants of
financial failure in production and trading enterprises in Kosovo. Financial failures
represent the loss of a business, which can cause significant losses for the business
owner, employees, and all those who benefited from the business. Therefore, identifying
the determinants of financial failure in a timely manner will help prevent such failures.
The secondary objective of this study is to produce adequate results and information that
will contribute to the existing literature on financial failures and creditor risk in
enterprises in Kosovo.
Research Methodology: To achieve this study's objectives, we will review a wide
range of literature from recent years and the scientific works of different authors. In
addition, we will use secondary data to produce results. These data are published in the
annual financial reports of the Ministry of Finance and the General Auditor's Office in
Kosovo. The sample for this scientific work includes 50 enterprises in the production and
trading sector, and the study covers a three-year period (2020-2022). The risk of
bankruptcy of these enterprises is analyzed through the Z-Altman model and the
Springate model, which will show the level of failures in these enterprises.
Research findings: From the results generated by this study, we can conclude that the
return on assets and return on equity have a positive effect on reducing the risk of
financial failure. Additionally, variables such as capital, firm size, liquidity, and solvency
have a positive correlation and impact on exposure to the risk of financial failure. On the
other hand, variables such as long-term liabilities and short-term liabilities increase the
risk of financial failures in trading and production enterprises in Kosovo.
Practical implications: This study provides detailed empirical evidence on the
determinants of financial failure risk in production and trading enterprises in Kosovo.
Despite the limitations of this study, it can serve as a good source of information for
other researchers who will analyze the risk of financial failure of enterprises in different
sectors of the economy.
Originality: The paper contains original and real econometric data and results that
accurately and consistently demonstrate the effect of various financial factors on the risk
of financial failure in production and trading enterprises in Kosovo.