On the Predictability of Kibbutz Financial Distress: A Principal Component Analysis with Bootstrap Confidence Intervals

Abstract

This paper proposes an econometric model for conditional forecasting of kibbutz financial distress for a range of one to three years. The primary interest in examining the economic performance of the kibbutz is that its driving characteristic is collective rather than individual profit-maximizing. Thus, this study contributes to bridging the gap between literature on labor-managed firms and the theoretical and empirical models aimed at predicting financial distress. This study is also motivated by the kibbutz debt crisis of the mid-1980s.

The annual change in productive equity, scaled by either productive assets or annual sales, is assumed to represent kibbutz financial confidence. The attribute vector contains 26 explanatory variables defined over eight different dimensions: liquidity, profitability, cash flow, operating efficiency and growth, capital structure, saving rate, demography, and size. The model as a whole exhibits high statistical significance, efficiency of forecast, and a good fit. It outperforms the naive forecast model in all calculated measures of dispersion. This outcome is reaffirmed by the bootstrap simulation. The findings of this paper suggest that financially distressed kibbutzim are less profitable, tend to be highly leveraged, are characterized by low and even negative saving rates, and have a higher social burden. The paper provides empirical support for the emergency cash reserve, the optimal capital structure, and the heterogeneity hypotheses. The results are also consistent with predictions of organization theory derived from nontransferability of member rights.