Explaining the causes of business failure using audit report disclosures

Nora Muñoz-Izquierdo, María Jesús Segovia-Vargas, María-del-Mar Camacho-Miñano and David Pascual-Ezama

Journal of Business Research, 2019, vol. 98, issue C, 403-414

Abstract: This paper examines the ability of audit report disclosures to explain the causes of business failure. Despite incremental interest in organizational failure, much of the existing literature has used accounting ratios to foresee why firms fail. We hypothesise that the audit report can also be employed for this purpose because it provides information regarding any material uncertainty relating to events that may warn users about possible causes of business default. Using a matched sample of 808 failed and non-failed firms, our results suggest that audit report disclosures significantly explain the causes of business failure. Moreover, these findings are consistent with the results of studies that integrate both deterministic and voluntaristic perspectives into the examination of the antecedents of organizational failure, as disclosures about both external and internal factors are mentioned in the audit report and contribute to assessing default. Managers, auditors, regulators and other users may consider the audit report to be useful as a tool to anticipate business failure.

Keywords: Business failure; Causes; Deterministic perspective; Voluntaristic perspective; Audit report (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148296318303370
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:98:y:2019:i:c:p:403-414

DOI: 10.1016/j.jbusres.2018.07.024

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().