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Failure processes and causes of company bankruptcy: a typology

Failure processes and causes of company bankruptcy: a typology Purpose – The purpose of this paper is to show that previous research about financial and non‐financial causes of bankruptcy has neglected the time dimension of failure. The paper seeks to gain deeper insight into the failure process of a company, giving it a more grounded understanding of the relationship between the characteristics of a company, the underlying causes of failure and the financial effects. Design/methodology/approach – The findings are based on a literature overview and in‐depth case study research. Findings – Four types of failure processes were observed: the failure process of unsuccessful start‐ ups, the failure process of ambitious growth companies, the failure process of dazzled growth companies, and the failure process of apathetic established companies. Between these four failure processes, there exist major distinctions in terms of the presence and the importance of specific causes of bankruptcy, i.e. errors made by management, errors in the corporate policy and the importance of external factors. Research limitations/implications – The results of the study are based on qualitative, case study research. No attempt is made to quantify the existence and the importance of the findings. The major constructs that emerged as important in the research are well‐known concepts in the management literature. As a consequence, they should be further developed in order to quantify their effect in large‐scale studies. Practical implications – Based on the findings, stakeholders of a company can have a clearer view of both the time dimension inherent in corporate failure and the impact of their own actions on bankruptcy. Originality/value – The paper lays the ground for understanding the process of company failure. Company failure does not happen overnight and therefore a longitudinal and holistic perspective is needed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Decision Emerald Publishing

Failure processes and causes of company bankruptcy: a typology

Management Decision , Volume 46 (2): 20 – Mar 7, 2008

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References (50)

Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0025-1747
DOI
10.1108/00251740810854131
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to show that previous research about financial and non‐financial causes of bankruptcy has neglected the time dimension of failure. The paper seeks to gain deeper insight into the failure process of a company, giving it a more grounded understanding of the relationship between the characteristics of a company, the underlying causes of failure and the financial effects. Design/methodology/approach – The findings are based on a literature overview and in‐depth case study research. Findings – Four types of failure processes were observed: the failure process of unsuccessful start‐ ups, the failure process of ambitious growth companies, the failure process of dazzled growth companies, and the failure process of apathetic established companies. Between these four failure processes, there exist major distinctions in terms of the presence and the importance of specific causes of bankruptcy, i.e. errors made by management, errors in the corporate policy and the importance of external factors. Research limitations/implications – The results of the study are based on qualitative, case study research. No attempt is made to quantify the existence and the importance of the findings. The major constructs that emerged as important in the research are well‐known concepts in the management literature. As a consequence, they should be further developed in order to quantify their effect in large‐scale studies. Practical implications – Based on the findings, stakeholders of a company can have a clearer view of both the time dimension inherent in corporate failure and the impact of their own actions on bankruptcy. Originality/value – The paper lays the ground for understanding the process of company failure. Company failure does not happen overnight and therefore a longitudinal and holistic perspective is needed.

Journal

Management DecisionEmerald Publishing

Published: Mar 7, 2008

Keywords: Bankruptcy; Financial management; Companies; Corporate strategy

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