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Failure process and causes of company bankruptcy: a typology


  • H. OOGHE





This paper describes a typology of failure processes within companies. Based on case studies and considering companies’ ages and management characteristics, we discovered four types of failure processes. The first failure process describes the deterioration of unsuccessful start-up companies leaded by a management with a serious deficiency in managerial and industry- related experience. The second process reveals the collapse after a failing growth of ambitious early- stage companies. Those companies have, after a failed investment, insufficient financial means to adjust their way of doing business to the changes in the environment in order to prevent bankruptcy. Third, we describe the failure process of dazzled established companies, leaded by an overconfident management without a realistic view on the company’s financial situation. Lastly, the bankruptcy of apathetic companies, describes the gradual deterioration of an apathetic established company where management had lost touch with the changing environment. This typology gives new insight into the evolution of financial performance ratios during the years preceding bankruptcy. Furthermore, we found that there is a great difference in the presence and importance of specific causes of bankruptcy between the distinctive failure processes. Errors made by management, errors in corporate policy and changes in the gradual and immediate environments differ considerably between each of the four failure processes.

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  • H. Ooghe & S. De Prijcker, 2006. "Failure process and causes of company bankruptcy: a typology," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/388, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:06/388

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    1. Everett, Jim & Watson, John, 1998. "Small Business Failure and External Risk Factors," Small Business Economics, Springer, vol. 11(4), pages 371-390, December.
    2. Dimitras, A. I. & Slowinski, R. & Susmaga, R. & Zopounidis, C., 1999. "Business failure prediction using rough sets," European Journal of Operational Research, Elsevier, vol. 114(2), pages 263-280, April.
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    6. OOGHE, Hubert & WAEYAERT, Nick, 2004. "Oorzaken van faling: Literatuuroverzicht en conceptueel verklaringsmodel," Economic and Social Journal (Economisch en Sociaal Tijdschrift), University of Antwerp, Faculty of Applied Economics, vol. 57(4), pages 367-393, Februari.
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    8. S. Balcaen & H. Ooghe, 2004. "35 years of studies on business failure: an overview of the classical statistical methodologiesand their related problems," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/248, Ghent University, Faculty of Economics and Business Administration.
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    1. repec:kap:iaecre:v:17:y:2011:i:4:p:476-483 is not listed on IDEAS
    2. TOBBACK, Ellen & MOEYERSOMS, Julie & STANKOVA, Marija & MARTENS, David, 2016. "Bankruptcy prediction for SMEs using relational data," Working Papers 2016004, University of Antwerp, Faculty of Applied Economics.
    3. Monika Bolek & Bartosz Grosicki, 2014. "Forecasting Liquidity In Traditional And Technology-Based Sectors – The Case Of Poland," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(4), pages 25-38, April.
    4. du Jardin, Philippe & Séverin, Eric, 2010. "Dynamic analysis of the business failure process: A study of bankruptcy trajectories," MPRA Paper 44379, University Library of Munich, Germany.
    5. Carlos Serrano-Cinca & Yolanda Fuertes-Callén & Begoña Gutiérrez-Nieto & Beatriz Cuellar-Fernández, 2014. "Path modelling to bankruptcy: causes and symptoms of the banking crisis," Applied Economics, Taylor & Francis Journals, vol. 46(31), pages 3798-3811, November.
    6. Ivan Mihajloviæ & Nenad Nikoliæ & Zhaklina Dhamo & Peter Schulte, 2015. "The Reasons for SME’s Failure, Comparative Analysis and Research," Proceedings of FIKUSZ 2015,in: Jolán Velencei (ed.), Proceedings of FIKUSZ '15, pages 7-22 Óbuda University, Keleti Faculty of Business and Management.
    7. Catalin Ionut SILVESTRU & Ioana BURCEZAN (PRECUP) & Ramona Camelia BERE & Marian Ernut LUPESCU, 2015. "Concept: Using E-Learning Platforms in Economical and Entrepreneurial Development," Informatica Economica, Academy of Economic Studies - Bucharest, Romania, vol. 19(2), pages 90-100.
    8. Korol, Tomasz & Korodi, Adrian, 2011. "An Evaluation of Effectiveness of Fuzzy Logic Model in Predicting the Business Bankruptcy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 92-107, September.
    9. Jaroslaw Ropega, 2015. "Innovations in the small businesses failure paths model (Innowacje w modelu sciezek niepowodzen gospodarczych malych firm)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 13(50), pages 220-237.
    10. Ioana Maria BUCERZAN, 2015. "The Propagation Of Insolvency Among Business In Romania," EURINT, Centre for European Studies, Alexandru Ioan Cuza University, vol. 2, pages 64-79.
    11. repec:krk:eberjl:v:4:y:2016:i:2:p:139-156 is not listed on IDEAS
    12. Tudor Andrei RADULESCU & Carmen NISTOR, 2014. "What Causes Insolvency? A Study Regarding Big And Medium Romanian Enterprises Going Bankrupt In 2013," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 6(4), pages 114-121, December.
    13. Arthur B. Kennickell & Myron L. Kwast & Jonathan Pogach, 2016. "Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence from the Survey of Consumer Finances," NBER Chapters,in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 291-349 National Bureau of Economic Research, Inc.
    14. Jaroslaw Ropega, 2011. "The Reasons and Symptoms of Failure in SME," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(4), pages 476-483, November.
    15. Steven Liew Woon Choy & Jayaraman Munusamy & Shankar Chelliah & Ally Mandari, 2011. "Effects of Financial Distress Condition on the Company Performance: A Malaysian Perspective," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 85-99, August.
    16. Kennickell, Arthur B. & Kwast, Myron L. & Pogach, Jonathan, 2015. "Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence From the Survey of Consumer Finances," Finance and Economics Discussion Series 2015-39, Board of Governors of the Federal Reserve System (U.S.).

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