The Use of Financial Ratios and Corporate Governance Information to Predict Bankruptcy in the US Market During the COVID-19 Pandemic

Abstract

The aim of the study is to analyze the impact of prevailing COVID-19 Pandemic on the global business environment. More specifically, the emphasis of the study will be the comparison of performance of the sustaining businesses and the bankrupt companies due to the devastating effects of pandemic. To achieve the required results, two major models have been used namely Univariate and Multivariate models. The sample selected for the study is based on companies registered in US. The period selected is from the year 2015- 2019 to predict the bankruptcy in 2020 due to pandemic. The selected sample is divided into entire database of companies from 2015 to 2019 which contains both failed and non-failed companies and the sample data of those companies who have filed for bankruptcy in 2020. To test the hypothesis, ten (10) financial ratios based on historical accounting data and seven (7) corporate governance ratios, which are based on the qualitative measures, have been selected. The characteristics of these ratios are the ability to ascertain the overall performance of the companies as the selected ratios cover every aspect of the performance. The reason for incorporating both types of ratios is to accurately analyze the prediction model for testing the bankruptcy prediction.