Firm failure processes and components of failure risk: An analysis of European bankrupt firms

Oliver Lukason and Erkki K. Laitinen

Journal of Business Research, 2019, vol. 98, issue C, 380-390

Abstract: This paper aims to extract firm failure processes (FFPs) by using failure risk and rank the importance of failure risk contributors for different stages of FFPs. The dataset is composed of 1234 bankrupt firms from different European countries and three theoretically motivated FFPs are detected. For the dominant FFP found (73% of cases), failure risk becomes high very shortly before bankruptcy is declared. Annual and accumulated profitability are the most important failure risk contributors for these stages of all FFPs, where failure probability exceeds 50%. The obtained results provide important implications for bankruptcy prediction research and practice, especially in terms of identifying the most important financial predictors.

Keywords: Firm failure processes; Financial ratios; Bankruptcy risk; Clustering; European firms (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:98:y:2019:i:c:p:380-390

DOI: 10.1016/j.jbusres.2018.06.025

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