AbstractIt is pointed out in this paper that Lomax's hyperbolic function is a special case of both Compound Gamma and Compound Weibull distributions, and both of these distributions provide better models for Lomax's business failure data than his hyperbolic and exponential functions. Since his exponential function fails to yield a valid distribution function, a necessary condition is established to remedy this drawback. In the light of this result, his exponential function is modified in several ways. It is further shown that a natural complement of Lomax's exponential function does not suffer from this drawback.
Community businesses are enterprises which are owned and controlled by local residents and which aim to create jobs for local and unemployed people. Although they received generous support from both local and central government during the 1980s, growing concern is being expressed about their performance and contribution. This paper deals with a failed community business which, for a short period, appeared to be a successful example of what could be achieved in a disadvantaged community. The study highlights problems which can emerge where inexperienced volunteers are responsible for overseeing an increasingly complex commercial organisation with a weak management structure. It underlines the need for support agencies to ensure that up to date financial records are kept, for business growth to be tied to organisational capacity, and for local people to have access to specialist training and external support.
Purpose The purpose of this paper is to analyze the potential impact of stakeholders' behavior on business failure, through its influence on the generation and distribution of value added.
Design/methodology/approach Using a sample of 2,277 Spanish SMEs – half of which were businesses that failed during the years 2006‐2009 – the authors conducted an empirical study on a number of variables representing the participation of stakeholders in the generation and distribution of value added. This was undertaken in order to discern differential behavior between the variables and prove their usefulness in predicting business failure. For this purpose, a mean difference analysis between failed and non‐failed businesses and a multivariate logistic regression model were applied.
Findings The results obtained show that the stakeholders' behavior in relation to their participation in the generation and distribution of value added, affects the likelihood of business failure.
Originality/value This paper provides empirical evidence of the influence of stakeholders' behavior on the likelihood of business failure, through their participation in the generation and distribution of value added. The results are useful for creating management strategies because they offer advice on the implementation of business management models based on the stakeholder approach, and on the appropriate involvement of all those who make up the conglomerate in the generation and distribution of value added. They also emphasize the value of recording information related to the Value‐Added Statement in order to explain a firm's level of dependence on its stakeholders and assess the firm's risk of insolvency.
The survival of a company finds its limit in the problems faced throughout its existenceand which are likely to lead her to failure. Indeed, the company can be affected duringits existence by several parameters that can compromise its durability, among which wemention: continuous or discontinuous decrease of activity, loss of business orders, debtrecovery problems, imbalanced financial structure or a small capitalization,governmental tax adjustment, shareholders changes, key man death, social movement,etc. This makes business failure a transversal, dynamic and complex concept includingmany sides and multiple definitions.The aim of this paper is to highlight the contribution of various studies dedicated tobusiness failure. An in-depth analysis of the literature as well as the factors explainingdistress, leads us to develop a research model of business failure based on a financialapproach.
This work is framed in the research of business failure. We examine a method of analyzing the dynamics of financial failure. The authors examine a method of analyzing the dynamics of financial failure, because our goal is to analyze how the economic and financial indicators show the risk of failure in a group of companies. Using a sample of 163 companies declared bankrupt or dissolved, the authors show how to depict company trajectories of behavior and movement to terminal failure. They analyze these trajectories to find and describe empirical evidence of the different dynamics of bankruptcy. The authors also show that the estimation of failure risk is more accurate when these different failure trajectories are defined. In conclusion, the authors can see that there are different failure trajectories. One can use these different trajectories to identify more efficiently the indicators warning of the failure risk of the companies analyzed.
Case-based reasoning (CBR) is a problem-solving paradigm that uses past experiences to solve new problems. Nearest neighbor is a common CBR algorithm for retrieving similar cases, whose similarity function is sensitive to irrelevant attributes. Taking the relevancy of the attributes into account can reduce this sensitivity, leading to a more effective retrieval of similar cases. In this paper, statistical evaluation is used for assigning relative importance of the attributes. This approach is applied to predict business failures in Australia using financial data. The results in this study indicate it is an effective and competitive alternative to predict business failures in a comprehensible manner. This study also investigates the usefulness of non-financial data derived from auditor's and directors' reports for business failure prediction. The results suggest that the particular non-financial attributes identified are not as effective as the financial attributes in explaining business failures.
The purpose of this study was to examine and evaluate SMEs' implementation of minimum accounting practices which are some of the real underlying symptoms that lead to small and medium-size (SMEs) business failures, especially in rural and semi-urban areas. The study was conducted in Thohoyandou, the Central Business District (CBD) of Thulamela Municipality in the Vhembe district in Limpopo province, South Africa. The study used data based on responses to a structured questionnaire from randomly selected SMEs in Thohoyandou, an area whose SME business environment is similar to the challenges and opportunities faced by many other rural and semi-urban areas in South Africa. Due to cost and time constraints, the study sample was limited to 40 SMEs. The study findings confirm that SMEs often fail to comply with fundamental accounting practices like maintaining complete accounting records, which limits business information vital for decision making, as they think there is no need to keep them and that it exposes their financial position. The relevance of the study is to show how non-adherence to adequate accounting practices can negatively affect SMEs financial performance which consequently contribute to their inevitable failure. The study recommends development of training policy guidelines to sensitize SMEs of the need to comply with relevant accounting practices including internal controls and the legal requirements. Keywords: accounting practices, SMEs, symptoms, record keeping, failures. JEL Classification: M41
Crisis management theory, developed through the study of industrial disasters and socio‐technical failures, is applied to three cases of business failure. The principle objective of the research reported in this paper was to identify whether or not successive failures could have been avoided through organizational learning from similar prior events and what factors might have contributed to or prevented learning. The research also aimed to establish whether or not theoretical frameworks for analyzing and understanding industrial disasters and socio‐technical failures are applicable to business failures.Using detailed case analyses of the failures of Johnson Matthey Bank, the Bank of Credit and Commerce International and Barings, the paper illustrates a series of remarkable similarities in these business failures. It also demonstrates an apparent inability of the management involved in the later failures to learn from what had happened before. Organizational culture is singled out as the main contributing factor in these failures. This paper, in part, proves the case for applying industrial crisis management theory to business failure.
Fraud has been of concern for many corporate managers and regulators since many businesses have been victim of business failures. Business failure corporations have reported and become an element of fraudulent financial reporting.Therefore, the first aim of this study is to examine whether a collective prediction tool can be used to predict business failure and fraudulent financial reporting.The second and more important objective of this study is to examine whether business failure companies are associated with fraudulent financial reporting. The collective prediction tool is based on ratio analysis, Beneish M-score model and Z-score model. Using publicly available information in the annual reports of 24 failed firms matched with 24 non-failed firms listed on Bursa Malaysia, relevant information are extracted and applied in the three models to assist in predicting business failure and detecting fraudulent financial reporting. A total of 10 ratios, cash conversion cycle, Beneish M-score model and Altman's Z-score model were identified for examination as potential predictors of business failure and fraudulent financial reporting. Based on the results, the model was accurate in classifying the total sample of approximately 96 per cent as predictors of business failure and approximately 83.3 per cent as predictors of fraudulent financial reporting as well as predicting the relationship between business failures and fraudulent financial reporting. Hence, it can be concluded that these model functions effectively and can be adopted by regulators, bankers, management, internal and external auditors and to the forensic accountants so that proper preventive or corrective action can be taken to mitigate fraud at its inception.
This book explores the contribution of corporate CEOs and their top lieutenants toward business success and failure. By looking at the three most recent economic crises, the S & L crisis, the dot-com bubble, and the recent subprime mortgage disaster, the author explains why and how corporate managers led their organizations toward disasters in the long-run, and explains the recent destructive collaboration within the organization, across the industry, and between business and government.