Reasons for potential bankruptcy: evidence from the construction industry in Slovakia

Small and medium-sized enterprises are seen as a source of growth, new ideas, and the competitiveness of the economy, as they can flexibly respond to changing conditions through their rapid launch and activities; on the other hand, these entities are associated with a relatively high failure rate. The purpose of the paper is to analyse the overall dynamics in the construction industry in Slovakia with the focus on the failure rate of companies due to bankruptcy, and to identify the reasons for and specifics of bankruptcy in the construction sector in Slovakia. A Slovak dataset of critical events, used for the identification of bankrupt companies, was paired with a dataset containing the financial statements of 162 companies which went bankrupt in the Slovak construction sector during the period of 2016-2020 and whose bankruptcy proceedings have been completed. Data from the Statistical Office of the Slovak Republic were presented to provide a deeper understanding of the size of the in- dustry and its development over time. Selected reasons for bankruptcy (overindebtedness, insolvency, age of the company, and region) were analysed by means of descrip- tive statistics and correlations to the duration of bankrupt- cies. The research confirmed that simple signals indicat- ing potential financial problems could be captured well in advance of bankruptcy. The majority of bankrupt entities reacted to such signals and prepared for bankruptcy, while the regional aspect was insignificant. The results of the research constitute a contribution to the identification of the specific reasons that lead to bankruptcy among companies in the construction industry in Slovakia.