Presenters: Jake Kim, Business, organizational leadership
Authors: Jake Kim
Faculty Advisor: Yang Huo, Business, organizational leadership
Institution: Utah Valley University
The United States is experiencing one of its worst recessions since World War I. The U.S. Bureau of Labor Statistics (2020) reports that total nonfarm payroll employment fell by 701,000 in March 2020, and the unemployment rate rose to 4.4 percent. The changes in these measures reflect the effects of the coronavirus (COVOID-19). Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places (BLS, 2020). Total bankruptcies filed in the calendar year 2019 are 774,940 vs. 2018 are 773,418 (AOC, 2020). In today’s volatile economic environment and vulnerable business climate will trigger more bankruptcy filing in upcoming years. Therefore, the restaurant industry needs to predict business failure to survive in economic crisis. The objectives of this study are to discuss the current bankruptcy prediction models in the context of pros and cons to determine the appropriate factors for Chapter 11 bankruptcy and to compare these factors to similar restaurants that are either operating successfully (not in bankruptcy) or no longer operating due to financial failure. The unit of analysis of this study is publicly traded Eating Places with 5812 SIC Code listed in Stock Exchange Commission (SEC). We collect 32 restaurants filed a bankruptcy between 1996 and 2018 out of 455 restaurants from the EDGAR and from Form 8-K and12 financial ratios one year prior to the bankruptcy year applied to four models such as a multiple discriminant model (MDA), a logit regression model, an artificial neural network model (ANN), and the Altman Z-score. Among the financial ratios working capital, retained earnings, and EBIT are the most critical factors contributed toward the bankruptcy. This study endeavors to discover statistically significant relationships and associations of more than a trivial magnitude. Therefore, this study’s results will aid management in staving the bankruptcy.