BANKRUPTCY PREDICTION ON FIRM PERFORMANCE IN PRE – DURING COVID -19 PANDEMIC: SPECIAL REFERENCE TO LISTED MAINBOARD HOTEL COMPANIES IN SRI LANKA

Abstract

The influence of corporate bankruptcy on the economy is considerable as it encompasses shareholders, financial lenders, operational lenders, and the government. It is necessary to do a bankruptcy evaluation so the businesses can receive early bankruptcy warning signs. The earlier signs of insolvency are identified, the better for management because they can take immediate action to correct the issue. This paper aims to investigate the impact of bankruptcy prediction on firm performance with involving COVID -19 pandemic with a focus on listed mainboard-hotel companies in Sri Lanka while referring current Sri Lanka’s economic crisis. When there is a financial crisis, it is crucial to choose a model for bankruptcy prediction. The study uses semi-annual secondary data to examine a sample of 12 mainboard-hotel companies listed on the Colombo Stock Exchange from year 2016 to 2022. Altman's and Kida Z-scores are the bankruptcy prediction models used to measure bankruptcy. According to the findings, there are seven safe zone hotel companies, three hotel companies are in grey zone and two are recognized as distressed. Return on equity, return on assets and employee productivity were used to construct independent variables. The study also discovered that the profitability and liquidity ratios could foretell the insolvency of mainboard-hotel companies listed on the Colombo Stock Exchange. The findings of the study examined the comparison between model estimations of the study and the actual status of the firms. The study showed the Altman's and Kida Z-scores classification models have 89.6% and 69.5% accuracy for the average predictive ability of business discontinuation, respectively. Overall Altman’s Z-score is better than the Kida model as most of the hypotheses have been proved and prediction rates are in a good position. The variables have a statistically significant association between bankruptcy risk. Therefore, all objectives have been achieved in the study.