Failure processes and causes of company bankruptcy: a typology
Ooghe, Hubert De Prijcker, Sofie
Ooghe, Hubert
De Prijcker, Sofie
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Publication Type
Journal article with impact factor
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Supervisor
Publication Year
2008-03-07
Journal
Management Decision
Book
Publication Volume
46
Publication Issue
2
Publication Begin page
223
Publication End page
242
Publication Number of pages
43
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Abstract
The purpose of this paper is to show that previous research about financial and non‐financial causes of bankruptcy has neglected the time dimension of failure. The paper seeks to gain deeper insight into the failure process of a company, giving it a more grounded understanding of the relationship between the characteristics of a company, the underlying causes of failure and the financial effects. The findings are based on a literature overview and in‐depth case study research. Four types of failure processes were observed: the failure process of unsuccessful start‐ ups, the failure process of ambitious growth companies, the failure process of dazzled growth companies, and the failure process of apathetic established companies. Between these four failure processes, there exist major distinctions in terms of the presence and the importance of specific causes of bankruptcy, i.e. errors made by management, errors in the corporate policy and the importance of external factors. The results of the study are based on qualitative, case study research. No attempt is made to quantify the existence and the importance of the findings. The major constructs that emerged as important in the research are well‐known concepts in the management literature. As a consequence, they should be further developed in order to quantify their effect in large‐scale studies. Based on the findings, stakeholders of a company can have a clearer view of both the time dimension inherent in corporate failure and the impact of their own actions on bankruptcy. The paper lays the ground for understanding the process of company failure. Company failure does not happen overnight and therefore a longitudinal and holistic perspective is needed.
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Keywords
35 Commerce, Management, Tourism and Services, 3507 Strategy, Management and Organisational Behaviour