Abstract
This study considers the novel topic of comparing firm failure processes between different countries. For seventy bankrupt Finnish firms corresponding pairs are found among Estonian bankrupt firms based on industry, size and time of bankruptcy. Despite the similarity of firms from two countries, the analysis shows remarkable differences in both pre-failure financial data and reasons for failure. Based only on financial data, five failure processes are detected for Finnish and six for Estonian firms. Established failure processes associate with different failure reasons. The study contributes to literature by showing that for similar companies failure processes can differ across countries. In practice, the established information about different failure processes can be applied when building or using bankruptcy prediction models.
Highlights
Lengthy research in the field of firm failure has created a multitude of studies covering various facets, such as prediction, reasons, processes and aftermath of corporate collapse
The purpose of this paper was to investigate whether the failure processes described using financial variables and reasons for bankruptcy differ through countries
Based on the sample of paired Estonian and Finnish bankrupt firms, it was established that companies from these two countries are remarkably different before the bankruptcy moment
Summary
Lengthy research in the field of firm failure has created a multitude of studies covering various facets, such as prediction, reasons, processes and aftermath of corporate collapse. Derived from the above, the objective of this study is to extract taxonomies of failure processes and find out how they differ based on the data of Estonian and Finnish firms. These two countries have been chosen as they are good pairs for comparison as, for instance, they share similar historical, cultural and linguistic backgrounds, location in the same region, comparable legislation, high economic ties and other common features. The paper ends with conclusions, which include a discussion of results and study limitations, and domains of future research
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