To read the full version of this content please select one of the options below:

Why Does a Firm Go Bankrupt?

Challenges on the Path Toward Sustainability in Europe

ISBN: 978-1-80043-973-3, eISBN: 978-1-80043-972-6

Publication date: 4 December 2020

Abstract

By utilizing a large sample of firms during the period 2006–2017, the author determine which types of firms are more likely to go bankrupt. The author shows that over-leveraged firms have significantly higher probability of going bankrupt, which highlight the importance of the concept of optimal corporate capital structure. The author finds that private firms and export-oriented firms experience lower hazard rates. Proposed hazard statistical model highlights that more profitable firms, firms with better liquidity, firms with more tangible assets and larger firms all have statistically higher survival rates. The author finds that bankruptcy rates are the lowest among service firms and the highest in construction industry. Ownership variables indicate that state-owned firms, firms with foreign ownership and firms, owned by holdings, are less likely to fail, all else equal. Finally, the author demonstrates that proposed statistical model successfully predicts the probability of bankruptcy. The mean cumulative hazard function for a group of surviving firms is statistically significantly lower compared to a group of failing firms. In order to survive in a long run, firm’s management should especially be aware of their optimal capital structure and use rather less leverage than going over the sustainable level.

Keywords

Citation

Marinšek, D. (2020), "Why Does a Firm Go Bankrupt?", Žabkar, V. and Redek, T. (Ed.) Challenges on the Path Toward Sustainability in Europe, Emerald Publishing Limited, Bingley, pp. 101-126. https://doi.org/10.1108/978-1-80043-972-620201007

Publisher

:

Emerald Publishing Limited

Copyright © 2021 Emerald Publishing Limited