BANKRUPTCY RISK AND SHARE PRICES: A CASE STUDY ON ENERGY COMPANIES IN KUWAIT

Musaed S. AlAli, Ibraheem T. AlAskar, Eman O. AlForaih

Abstract


This study aims to investigate how investors' perceptions of risk impact the stock prices of energy companies listed on the Kuwait Stock Exchange (KSE) from 2016 to 2023. Investors' belief in the future financial stability of the companies they invest in influences their risk perception. Therefore, if investors hold pessimistic views, they will decrease their investment in these companies, causing share prices to drop, and vice versa. The Zmijewski x-score model is utilized in this study as a measure of risk to assess the financial stability of Kuwaiti energy companies and its impact on their stock prices. The study employs ordinary least square regression (OLS) to analyze the correlation between the x-score and share prices. Results from this research indicated that there was no statistically significant relation between Zmijewski's x-score and stock price and that investors look at other factors when choosing their investments. This is evident because the company with the greatest bankruptcy risk in the following two years also had the second-highest share price.

 

JEL: G1, G4, M21

 

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Keywords


Zmijewski x-score model, risk perception, financial distress, financial soundness, bankruptcy risk, energy companies, Kuwait Stock Exchange (KSE)

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References


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DOI: http://dx.doi.org/10.46827/ejefr.v8i5.1834

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