Definition of financial distress supported by data in Slovak corporate conditions
by Martin Bod'a; Vladimír Úradníček
European J. of International Management (EJIM), Vol. 21, No. 4, 2023

Abstract: Any prediction of corporate financial condition requires a definition of financial distress. Using data on Slovak enterprises for the years 2010-2017, the paper discusses several definitions of financial distress conceivable for Slovak conditions and explores which definition is supported by data. It is inevitable to establish which of the variety of definitions adopted in recent research is actually supported by real financial traits of Slovak enterprises. To this end, Slovak enterprises are divided into separate groups by applying the OPTICS clustering algorithm on ten common financial metrics depicting financial status one year prior to the assessment, and these groups are then confronted to those that arise from applying 25 different definitions of financial distress. It transpires that none of the definitions is reflected in the ten financial indicators, which suggests that in Slovak conditions non-financial factors may be at work that cause eventually financial distress. Irrespective of the focus upon Slovak conditions, the results act as a caveat against the disposition of financial distress studies to embrace a criterion a priori without any heed whether it is well reflected in the data.

Online publication date: Fri, 03-Nov-2023

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