Relationships Between the Beneish M-Score and Bankruptcy Models: Insights from Financial Models in Czech Manufacturing Firms

Many well-known cases worldwide demonstrate that even if companies appear financially strong, their actual accounting reality may differ. Uncovering fraudulent behaviour is difficult, so auditors, financial authorities, stock exchanges, etc., must detect and eliminate it. This paper aims to determine the relationship between the Beneish M-score model and two bankruptcy models, Altman’s Z-score and the Czech IN05 model. It verifies if there are significant differences in how these models classify firms, and whether the Beneish model aligns with them. The application part focuses on the 3,568 firms from the Czech manufacturing industry between 2015 and 2022, and uses the Bowker test for symmetry, working with paired data. The Beneish model showed that 34% of enterprises are at risk of fraud. The results of the analyses further confirmed the existence of systematic and statistically significant differences between the classifications of companies according to the Beneish model and the bankruptcy models Alman Z-Score and IN05. Therefore, if companies tend to go bankrupt, it is not possible to determine whether they will tend to manipulate statements or not. Similarly, a tendency to manipulate financial statements cannot be demonstrated in companies with good financial health.