Title: Liquidity, probability of bankruptcy and the corporate life cycle: the evidence from Czech Republic

Authors: Natalia Mokhova; Marek Zinecker

Addresses: Faculty of Business and Management, Brno University of Technology, Kolejní 2906/4, 61200, Brno, Czech Republic ' Faculty of Business and Management, Brno University of Technology, Kolejní 2906/4, 61200, Brno, Czech Republic

Abstract: The paper is focused on the analysis of liquidity and probability of bankruptcy on the different stages of the corporate life cycle (CLC) as growth, maturity and recession. After the global financial crisis (GFC) of 2007-2008 many companies have appeared at the stage of recession or even bankruptcy. This study examines the financial performances of small- and medium-sized enterprises (SMEs) in Czech Republic at the different stages of corporate life cycle during the period 2006-2010 (which includes the year before financial crisis and after). We find that corporate life cycle influences the relation between bankruptcy probability and liquidity. There is a negative and strong relation between profitability and liquidity at the stage of growth and maturity. In addition, the strong and negative relation is found between coverage ratio and liquidity ratio at the stage of decline. However, there is a weak effect of activity on liquidity at all stages of corporate life cycle.

Keywords: liquidity; bankruptcy probability; growth; maturity; decline; small and medium-sized enterprises; SMEs; global financial crisis; Czech Republic; globalisation; small business; corporate life cycle; financial performance; firm performance.

DOI: 10.1504/IJGSB.2013.054912

International Journal of Globalisation and Small Business, 2013 Vol.5 No.3, pp.189 - 208

Received: 07 Oct 2012
Accepted: 25 Oct 2012
Published online: 27 Dec 2013 *

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