Corporate Failure Research Articles

Seeking Incentives for a Successful Second and third Business Opportunity after Bankruptcy in Times of Recession

In the years of the financial and sovereign debt crisis in Greece, many viable businesses that are facing financial difficulties are led to liquidation rather than timely restructuring, with very few entrepreneurs having a second chance. This corporate failure faced by Greek companies in recent years may have been caused by either endogenous or exogenous factors or a combination of these two. In this paper we investigate the factors (economic, social and political) that will help to facilitate entrepreneurs' access to a second and third opportunity, taking also into account socially vulnerable groups such as disabled people and women entrepreneurs. Moreover, we try to find the characteristics that would encourage honest bankrupt entrepreneurs to a second business venture and the sectors where a second chance may have increased chances of sustainability in Greece. The aim of our research is to lead Greece to higher levels of self-employment, reduction in unemployment, and exit from the crisis.

Impact of board democracy on financial performance of firms listed in colombo stock exchange

Along with the widespread attention on corporate governance due to a series of corporate failures directly attributable to agency issues, many countries have formulated best practices and have incorporated these into listing rules of capital markets. These best practices essentially aim to instil democracy in the governing structure of corporations. Nevertheless, neither the level of compliance nor the effectiveness of the best practices in enhancing performance is known without doubt. Therefore, this study first measures the compliance with the best practices using a corporate governance index which is used in this study as a proxy for board democracy and then investigates its effect on firm performance measured using ROA and Tobin's Q. Data was collected on a random sample of 100 firms listed in the Colombo Stock Exchange in Sri Lanka for 2014 and 2018. Findings showed an increase in board democracy as indicated in higher compliance with corporate governance best practices in 2018 compared to 2014. However, even though higher compliance with corporate governance best practices is associated with higher financial performance, its influence on market performance was not evidenced. Therefore, though the effect of board democracy on firm performance cannot be entirely denied, further studies are required to investigate whether the prevailing best practices enhance board democracy so that it can influence firm performance.

Country Governance and Corporate Governance as determinants of Firm Efficiency; Empirical Study of Pakistan

Financial Crisis Inquiry Commission (FCIC) report of 2011 state that financial crises and failure of large corporation is due to weak governance system. Therefore, governments and regulatory bodies are convinced to ensure effective CG practices and strict regulatory requirements must be imposed. The primary aim of this research is to examine the effect of corporate governance both at country and firm-level on the firm’s efficiency of Pakistani listed non-financial firms. The empirical analyses consist of two parts. Initially firm efficiencies such as overall technical efficiency, Pure Technical efficiency and Scale efficiency are measured through Data Envelopment Analysis (DEA) technique over a 10 years’ period from 2008 to 2017.These efficiency scores are used as proxies for firm performance. In the second stage, CGboth at firm and country level are used as independent variables to examine its impact on firm efficiencies scores. The results findings support the theoretical justifications that efficient system of CG and regulatory system ensures disclosures. These disclosures not only enhance accounting information quality but also help in reducing agency cost which in return improve investors protection. Thus, managers tend to take decisions in the best interest of shareholder by utilizing firm resources efficiently and effectively and as a result enhance firm efficiency.

IMPACTS OF EARNINGS MANAGEMENT ON CORPORATE FAILURE: A CASE STUDY OF WIRECARD

The purpose of this study is to find out whether earnings management has impacts on bankruptcy risk based on the data of Wirecard Company. The M-score of Beneish's (1999) model has been used to detect the probability of earnings management. On the other hand, the Z"-Score of Altman's (1968) model has been applied to detect Corporate Failure. Both the models are widely used models in their respective fields. The data from 2002 to 2019 were collected from the annual reports of the Wirecard Company. The result of M-Score indicates that earnings management has a significant impact on the corporate failure (Z-Score) of the company. This finding specifies that a financially distressed firm adopts earnings manipulations. The finding also implies that earnings manipulations harm the financial health of a firm. According to the findings, it can be suggested that to know the financial aspects of a company, both the (Beneish M-model and Altman Z-score model) models could be used concurrently. Beneish M-model is for detecting earnings management and the Altman Z-score model is for determining corporate failure. The novelty of the study is that no study was done on Wirecard Company focusing on the association between earnings management & bankruptcy risk.

Influence of earnings management on forecasting corporate failure

This paper studies the relationship between corporate failure forecasting and earnings management variables. Using a new threshold model approach that separates samples into different regimes according to a threshold variable, the authors examine regimes to evaluate the prediction capacities of earnings management variables. By proposing this threshold model and applying it innovatively, this research reveals boundaries within which earnings management variables can yield superior corporate failure forecasting. The inclusion of earnings management variables in corporate failure models improves failure prediction capacities for firms that manipulate substantial earnings. Furthermore, an accruals-based variable improves predictions of failed firms, but the real activities-based variable improves predictions of non-failed firms. These findings highlight the importance of indicators of the magnitude of earnings management and the tools used to improve the performance of corporate failure models. The proposed model can determine the predictive power of particular explanatory variables to forecast corporate failure.

Corporate failure prediction: An evaluation of deep learning vs discrete hazard models

In recent years, deep learning has emerged as a dominant machine learning method used in a variety of applications, including robotics (such as self-driving cars), speech recognition, text analysis and natural language processing, fraud detection, earthquake prediction, medical image analysis just to mention a few applications. In this paper, we propose an optimum deep learning model using a panel data structure to predict corporate failure. We compare deep learning with the more traditional discrete hazard model which has been widely applied in the finance literature in panel data applications (such as bankruptcy prediction). Based on a sample of 641,667 firm-month observations of North American listed companies between 2001 and 2018 and including many financial and market-based feature variables, our deep learning model can predict corporate failure with 93.71% accuracy. This is significantly more accurate than the discrete hazard model which predicted corporate failure with only 86.95% accuracy. Not only has our deep learning model proven highly effective in corporate failure prediction but it can be potentially applied to many other classification problems in finance involving panel data structures.

Impact of corporate governance on bank profitability - post reforms by RBI and SEBI

In India, the increasing awareness with respect to CG, particularly in the commercial banking industry can be attached to a variety of factors such as liberalization, scams, corporate failures in banks, accounting and other irregularities that have led to an era of rising public distrust of the governance process in the banking landscape. Because of economic problems arising out of banking mis-management and failures, studies on bank profitability have become imperative for recognizing problems and mitigating economic risks. Over the last few years, Indian banks' toxic loan pile has increased considerably in addition to frequent instances of governance lapses being identified by the regulator. Indian banks' failure to adhere to acceptable business practices has unraveled a chain of events that have caused distress to the public causing the regulator to overhaul its outlook towards CG in banks and decision to infuse capital in the banking sector to revive it. The study attempts to assess the relation between governance and other factors' impact on the bank profitability with empirical evidence from Axis, HDFC, ICICI, PNB, SBI and Yes Bank. The study outlines links between the Bank's Size, Board Independence, Independence of Audit Committee, Audit Committee Strength, Duality of Role, NPA Divergence and profit by using Return on Equity, Return on Assets and Net Interest Margin as proxies for measuring profitability. The findings indicate that Audit Committee Independence, Audit Committee Strength had a statistically significant impact on bank profits, while Bank Size had a negative affiliation to profits as per all three indicators of profits.

Financial Performance, a Driver for Information Voluntary Disclosure: Insight from Manufacturing Companies in Nigeria

The prevailing issues surrounding voluntary disclosure is corporate failure, fraud perpetration, information asymmetry and inability to attract much investment. Companies with high financial performance tend to disclosure more information in their annual report by way of showcasing their superiority over less performing companies. In the light of the above, the study sought to ascertain the effect of financial performance on voluntary disclosure of quoted manufacturing companies in Nigeria as at 1st January, 2019. Expo facto research design was adopted and secondary data were extracted from the annual report of nineteen (19) manufacturing companies for a period of ten years (2008-2019). The analysis of the study was done using STATA software to run the descriptive and inferential statistics (multivariate regression analysis). The result depicted an insignificant effect between financial performance and market competition information voluntary disclosure (MCIVD), and also a significant effect between financial performance and human capital information voluntary disclosure (HCIVD). Return on asset showed a negative but significant effect, liquidity a negative but insignificant effect, and market capitalization a positive but insignificant effect on MCIVD. Whereas Return on asset showed a negative but significant effect, liquidity and market capitalization a positive but insignificant effect on HCIVD. The study recommends that management should boost their market capitalization to have more market competition information voluntary disclosure. Also, management should strive towards improving the LQ and MCAP of manufacturing companies in Nigeria. This in turn will help to meet up the need of employees in having more voluntary human capital information disclosure.

Management Going Concern Disclosure, Mitigation Plan, and Failure Prediction—Implications from ASU 2014-15

ABSTRACTThe going concern (GC) assumption forms the basis for preparing financial statements unless liquidation becomes imminent. ASU 2014-15 requires management to evaluate GC uncertainties quarterly and provide disclosures in the notes. I compare management GC disclosures between the pre-standard and post-standard regimes. I find that the market reacts negatively to substantial doubt in GC only after ASU 2014-15. Next, I find the effect of ASU 2014-15 for quarterly reports, but not annual reports. More importantly, by employing detailed textual analysis to extract and categorize mitigation-plan discussions, I show that certain types of management mitigation plans are interpreted more positively by investors after ASU 2014-15, thereby alleviating the negative market reaction. These plans include issuing debt, debt restructuring, increasing revenue, and selling assets. Finally, I demonstrate that management GC conclusions are more indicative of corporate failures after ASU 2014-15 and that mitigation-plan discussions are associated with firms' future viability.

The audit reform in the United Kingdom: Challenges and the future

Subject. Intended to counter fraud and unreasonably high bonuses for top executives, the U.K. corporate governance and audit reform implies some changes so as to improve the financial transparency of companies, primarily, large and public interest entities. The reform is called to maintain the lucrativeness and competitiveness of the U.K. financial markets, creating a sustainable and manageable environment, which major long-term investors seek. Objectives. I review and summarize proposals set out in the reform as best-in-class practices, which may work in auditing and assurance in Russia and underlie respective changes. The reform may contribute to the auditing profession, help avoid accounting scandals and corporate failure. Methods. Studying the audit reform, I applied methods of analysis, generalization, and analogy. Results. Having analyzed the reform plan, I found valuable ideas concerning directors’ responsibilities, corporate reporting and auditing. The reform suggests that the Audit, Reporting and Governance Authority should be established. The definition of public interest entities became broader. Audit boards are now to meet additional requirements. The audit market will be overhauled by segregating auditing and consultancy units of the Big Four companies and introducing statutory audit, which should be jointly performed by major and smaller entities, and tightening audit transparency rules. Hence, top executives will be more responsible and liable for financial reporting and increased transparency of internal control and trade account settlement principles. Such proposals should be adapted to the audit regulation practice in Russia and be applied with reference to the recent legislative novels. Conclusions. The quality of audit is critical for the economy and the public, since it ensures the national credibility as a capital market. Any sustainable economy needs a comprehensive approach, which combines the audit reform and corporate governance and accounting standards reform.

Transparency report disclosure practices of large- and medium-sized audit firms in South Africa

Research purpose: The purpose of this study is to examine the corporate governance practices disclosed by large- and medium-sized audit firms in South Africa, with a particular focus on transparency reports. Audit firms serve the public interest.Motivation for the study: This study was motivated by recent corporate failures in South Africa, such KPMG, VBS Bank, and Steinhoff, to mention a few.Research approach/design and method: The research approach followed for this study consists of a mixed method approach. Qualitative secondary data were obtained from publicly accessible information published on the websites of the audit firms. The data, which consisted of the firms’ transparency reports, were analysed through content analysis. The results were then converted into quantitative data.Main findings: The main findings reveal that audit firms in South Africa do not disclose sufficient corporate governance information in their transparency reports. There are inconsistencies between audit firms.Practical/managerial implications: In South Africa, audit firms do not have a corporate governance code for audit firms, and thus audit firms are not disclosing the relevant corporate governance information to their stakeholders.Contribution/value-add: This article contributes to the limited literature available on audit firm governance. Based on the findings, the study proposes best practice recommendations and regulatory and statutory recommendations regarding audit firm governance.

Labor Contracts, Wages and SME Failure

Although employment protection and employee remuneration has been shown to affect many aspects of a firm’s performance, evidence of their ability to explain firm failure is very limited. This paper examines the effect of different types of labor contracts and wages on the probability of corporate failure between 2012 and 2019 using a sample of 29,596 Belgian SMEs. Using discrete time hazard regression models, we find that the use of contract types with lower employment protection and paying lower wages are significant predictors of failure.

Modern Slavery Disclosure Regulation and Global Supply Chains: Insights from Stakeholder Narratives on the UK Modern Slavery Act

The purpose of this article is to problematise a particular social transparency and disclosure regulation in the UK, that transcend national boundaries in order to control (modern) slavery in supply chains operating in the developing world. Drawing on notions from the regulatory and sociology literature, i.e. transparency and normativity, and by interviewing anti-slavery activists and experts, this study explores the limitations of the disclosure and transparency requirements of the UK Modern Slavery Act and, more specifically, how anti-slavery activists experience and interpret the new regulations and the regulators’ implementation of the regulation. This research found limited confidence among anti-slavery activists regarding the Act’s call for transparency in relation to the elimination of slavery from global supply chains. The research also found that the limits of the transparency provisions within the Act appear to hinder the attainment of normativity. This study provides new and unique insights into the critical role that social activists play in exposing the lack of corporate transparency and failures of responsibility to protect workers within global supply chains.

WHY INTERNAL AUDIT SHOULD ASSESS CORPORATE CULTURE – A HOW-TO EXAMPLE

While culture is integral to corporate governance, risk management and controls, yet many Internal Audit functions do not provide assurance and advisory services on culture. This article will explain why Internal Audit should assess corporate culture. The key drivers are as follows: Culture has been widely recognized as the root causes for corporate scandals, failures and successes. Culture is a top risk cited by Internal Audit’s stakeholders, regulators, institutional investors and professional bodies. A strong positive culture could be a competitive advantage and an enabler to maximizing opportunities. Governing bodies have oversight responsibilities for culture. Management have responsibilities for determining, establishing, sustaining, reinforcing and adapting the desired culture. Internal Audit has responsibilities for providing independent, objective assurance and advisory services for corporate culture. This article will also provide examples on ways to learn about the culture of your organization and illustrate how to incorporate culture review in an IT audit project.

INTERNAL AUDIT AND QUALITY OF FINANCIAL REPORTING IN THE PUBLIC SECTOR: THE CASE OF UNIVERSITY FOR DEVELOPMENT STUDIES

Many corporate failures have occurred over the years as a result of poor financial reporting practices that have eluded investors and other consumers of financial data. The research used the University for Development Studies (UDS) as a case study. The study focused on three main goals: identifying emerging determinants of quality financial reporting, examining the efficacy and adequacy of UDS's internal control structure, and determining how much Internal Audit contributes to quality financial reporting. The research used a descriptive survey template and a sample size of 70 people who were chosen using purposive and stratified sampling techniques. To achieve objectives one and two, the analysis used binary regression, while to achieve objective three, the Best (2005) index was updated and used. Financial reporting accuracy, a computerized accounting system, and personnel competence were found to be determinants of quality financial reporting in the study. It was discovered that UDS' internal control system is ineffective since two of the five main components that make up an efficient internal control system, namely control environment and information and communication, are not properly implemented. The study found that UDS' internal audit reflects an average level of fraud prevention in terms of the robustness of auditing processes and fraud prevention indicators, with the remaining indicators indicating a high level of fraud prevention. Overall, UDS' internal auditing reveals a high degree of prevention. The University for Development Studies (UDS) should analyze, define, and enforce control setting, information, and communication components of the internal control system that are appropriate for their work processes, as well as enhance the existing components, according to the report.
 Keywords: Internal Audit, Financial Reporting, Public Sector, Ghana.

Effective Corporate Social Responsibility (Csr) Delivery as Panacea for Restiveness and Conflict in The Niger Delta: Role of The Mass Media

The Niger Delta has been a cauldron of restiveness and violent conflicts. Most of these conflicts result from the failure of the multinational corporations operating in the region to adequately discharge their Corporate Social Responsibility to the people. It is against this backdrop that this paper examines the issue of Corporate Social Responsibility as the panacea for the restiveness and conflict in the region as we as the crucial role the mass media have to play in assisting the corporate organisations to effectively discharge their obligations to the people. It is propounded here that failure to disseminate relevant information in this regard has led to mistrust and misunderstanding which eventually culminate in restiveness and conflict. The role of the media is therefore equally examined. The paper discovers that the media are constrained in the performance of this role. These constraints are presented and ways of tackling them are proffered.

A Study on impact of Forensic Audit towards Investigation and Prevention of Frauds

This study is on impact of forensic audit towards investigation and prevention frauds in any financial performances or corporate companies. The incessant financial Fraud resulting to corporate collapse and the failure of the statutory audit to detect and prevent fraudulent activities which had led to the impoverishment of investors had given rise to need for forensic auditor. In view of the above this paper considers the impacts of forensic auditor on corporate governance. The study was a theoretical research which considered the roles of forensic auditors in combating fraudulent activities, distinction of forensic auditor and statutory auditor, characteristic of forensic auditor and impact of forensic auditor on corporate governance. Data generated were analyzed using charts, graphs, tables and regression. Our findings revealed that forensic audit has a significant negative impact on number of fraud cases, number of staff involved in fraudulent activities and data collected with the sample size of 125 respondents through the well-structured questionnaires from the Auditors, Accountants, Managers, Professional Accountants and Accounting Knowledgeable persons with this data we have used SPSS Methodology to find the Regression, Correlation Coefficient, Descriptive statistics, Reliability test, Anova, Factor analysis. From studies carried out this paper is forensic auditors having improved management accountability, strengthened external auditor’s independence and assisting audit committee members in carrying out their oversight function by providing them assurance on internal audit report have impacted positively to corporate governance, thereby reducing corporate failure and impoverishment of investors.

Capping the tenure of CEOs as a Good Corporate Governance Strategy: Prospects and Challenges

The concept of good corporate governance has gaining traction over the last three decades in the private and public sectors as a response to serious financial scandals and maladministration practices in organisations around the globe. Antidotes provided in previous studies on these corporate failures attributed this to poor board compositions and inadequate separation of power. Whilst this was part of the problem, little effort was put to understand how Chief Executive Officers (CEOs) term limits could also contribute to good governance practice which would make organisations avoid scandals. Therefore, the purpose of this paper is to explore how capping CEOs tenure could enhance good corporate governance in the public and private sectors. This paper is based on a qualitative approach and used content analysis to review data from published records like journal articles. This article posited that capped term limit in both the public and private sectors is ideal as it enhances good corporate governance practice which in turn will make institutions effective and responsive to changes in their operating environment.

Potential for the Application of the Emerging Market Z-score Model in the Case of Listed Banks in Ghana

The primary goal of the research is how to put into operation the emerging market (EM) Z-score model in predicting corporate failure and to evaluate financial performance through the analysis of the annual audited report of four quoted banks in Ghana. More so this research introduces the Z-score model in this sector as a tool for possible diagnostic behind financial performance and deterioration. The method used in this research is primarily based on the EM Z-score model developed by Altman. The approach used in this research is in line with previous research that upholds the Z-score model with 80 percent prediction accuracy. These previous researchers confirm that it is a robust instrument that helps in predicting and assessing the overall performance of companies financially and possible distress of corporate organizations given that it consists of numerous ratios financially which can be utilized to predict business liquidation, financial distress, and corporate failure. The method set up in this research is to study the annual report of banks quoted on the Ghana Stock Market by computing their Altman emerging market Z-score ratio for three years that is from 2016 to 2019 and comparing it with 2019 which is the current year emerging market Z-score ratio to evaluate the whole performance of the banks financially as well as the possibility of liquidation of banks quoted on the Ghana Stock Market. The research establishes that banks in Ghana should work hard on enhancing the Z-score ratios which are dragging the emerging market Z-score down to better comprehend the earlier period performance and to realize their current situation in the sector; the Z-score can be adopted by banks in Ghana as an effective and efficient assessment approach towards the financing the possible long joint venture projects encompassing Small and Medium businesses enterprises. This model was adopted by banks in Ghana as an autonomous credit hazard examination approach to appraising the financial strength and competencies of potential projects. It was ascertained from this research that the Altman emerging market Z-score ratio model is an applicable model for measuring the performance of quoted banks in Ghana. Limitation including the Ghanaian banking sector is still considered to be a small size that may have negative consequences on the maximum result of the research. Future research should be conducted towards updating coefficient value associated with every ratio in the Altman emerging market Z-score ratio model as per the inputs from the banks in Ghana

Success and Failure Part 3: Sustained Organizational Achievement [MicroBudsiness

Reports on the benefits of failure as well as the perils of success in the business world. Examines the great success and achievements of the Radio Corporation of America (RCA). Presents an analysis of how its great success and achievements in the area of broadcasting and electronics would also experience expensive failures in the computer and mainframe industry. RCA is a story of sustained success followed by corporate failure.