Search results

This study aims to investigate the cross-sectional differences on the association between corporate social responsibility (CSR) and future bankruptcy along the dimensions of political connection and corporate governance strength. This study intends to provide evidence on the tangible benefits for firms to invest in social capital of CSR activities and offer insights on what firms may benefit more from CSR expenditure.

Running a logistic regression on the determinants of bankruptcy model after controlling for financial stress factors based on prior literature, this study examines the moderating effect of political connection and corporate governance on the association between corporate social responsibility and future bankruptcy.

Current study documents that the negative association between corporate social responsibility and future bankruptcy is only significant for politically connected firms, but insignificant for non-politically connected firms. Specifically, the authors find that one standard deviation increase of CSR expenditure significantly reduces the propensity of future bankruptcy by 53.20% for politically-connected firms. Conversely, the negative relation between CSR only exits for firms with weak corporate governance but do not exit for firms with strong corporate governance.

Current study provides evidence on the tangible benefits for firms to invest in social capital of CSR activities and offers additional insights on what firms may benefit more from CSR expenditure.

Current study extends the research to examine the cross-sectional variations in the negative association between CSR performance and the propensity of bankruptcy. The positive moderating effect of political connection on CSR and bankruptcy suggests that political connection and CSR are complements in reducing the propensity of future bankruptcy. A more pronounced negative association between CSR and bankruptcy for firms with weaker governance suggests that firms with weak corporate governance benefits more in engaging CSR activities than firms with strong corporate governance.

This study updates the literature review of Jones (1987) published in this journal. The study pays particular attention to two important themes that have shaped the field over the past 35 years: (1) the development of a range of innovative new statistical learning methods, particularly advanced machine learning methods such as stochastic gradient boosting, adaptive boosting, random forests and deep learning, and (2) the emergence of a wide variety of bankruptcy predictor variables extending beyond traditional financial ratios, including market-based variables, earnings management proxies, auditor going concern opinions (GCOs) and corporate governance attributes. Several directions for future research are discussed.

This study provides a systematic review of the corporate failure literature over the past 35 years with a particular focus on the emergence of new statistical learning methodologies and predictor variables. This synthesis of the literature evaluates the strength and limitations of different modelling approaches under different circumstances and provides an overall evaluation the relative contribution of alternative predictor variables. The study aims to provide a transparent, reproducible and interpretable review of the literature. The literature review also takes a theme-centric rather than author-centric approach and focuses on structured themes that have dominated the literature since 1987.

There are several major findings of this study. First, advanced machine learning methods appear to have the most promise for future firm failure research. Not only do these methods predict significantly better than conventional models, but they also possess many appealing statistical properties. Second, there are now a much wider range of variables being used to model and predict firm failure. However, the literature needs to be interpreted with some caution given the many mixed findings. Finally, there are still a number of unresolved methodological issues arising from the Jones (1987) study that still requiring research attention.

The study explains the connections and derivations between a wide range of firm failure models, from simpler linear models to advanced machine learning methods such as gradient boosting, random forests, adaptive boosting and deep learning. The paper highlights the most promising models for future research, particularly in terms of their predictive power, underlying statistical properties and issues of practical implementation. The study also draws together an extensive literature on alternative predictor variables and provides insights into the role and behaviour of alternative predictor variables in firm failure research.

Periods of financial distress represent an episode during the firm’s life that requires an effective governance structure in the interests of shareholders. Changes in corporate governance structure are examined as firms approach and emerge from Chapter 11 bankruptcy. The purpose of this paper is to posit that firms alter their governance toward a more effective framework during restructuring, leading to emergence as a better performing firm.

The data set includes large firms that filed for bankruptcy between 1998 and 2013. Financial and governance characteristics prior to filing are compared to traits following emergence. The likelihood of emerging from bankruptcy is tested based on governance characteristics prior to filing and the change in these characteristics during bankruptcy.

The results show that firms use the bankruptcy process to significantly change their governance characteristics. These changes include smaller boards, greater board independence, unitary boards, the separation of the CEO and chairman positions, and changes in the ownership structure. Despite these changes, performance following emergence does not improve, and the changes in governance structure do not alter the likelihood that the firm will emerge.

This study, unlike previous studies, takes a broad look at governance characteristics for firms before and after bankruptcy. The findings imply that “better” governance, as defined in the literature, is not necessarily the pathway to better performance as many posit. The factors that influence the likelihood of emerging from bankruptcy and post-emergence performance require further study.

Recent research questions whether bankruptcy is the best proxy for assessing going concern since filing for bankruptcy is not synonymous with the invalidity of the going concern assumption. Furthermore, in contrast to debtor‐oriented countries such as the USA, liquidation is the most likely outcome of corporate insolvency in creditor‐oriented countries such as the UK, Germany, Australia and New Zealand. This suggests that bankruptcy prediction models have limited use for assessing going concern in creditor‐oriented countries. This study examines the efficacy of a corporate liquidation model and a benchmark bankruptcy prediction model for assessing company liquidation. It finds that the former is more accurate in predicting company liquidations in comparison with the latter. Most importantly, Type 1 errors for the liquidation prediction model are significantly lower than for the bankruptcy prediction model, which indicates its greater efficacy as an analytical tool for assessing going concern. The results also suggest that bankruptcy prediction models might not be appropriate for assessing going concern in countries where the insolvency code is creditor‐oriented.

This paper aims to examine corporate social responsibility (CSR) and corporate bankruptcy. Specifically, the authors ask the following research questions: Does CSR play a role in determining the likelihood of bankruptcy? Does CSR explain the difference in the probability of that firm eventually reorganizing and emerging from bankruptcy?

The authors address these questions by testing three CSR theories using a sample of 78 firms that filed for Chapter 11 bankruptcy during the period 2007 to 2014 along with a matched sample of firms that did not.

Overall, the findings indicate that stronger CSR firms are less likely to become bankrupt relative to weaker CSR firms, all else being equal. This result is in line with the stakeholder theory of CSR. However, results do not support the conjecture that CSR matters when it comes to bankruptcy emergence. While CSR seems to influence whether a company experiences bankruptcy in the first place, having strong CSR does not seem to help a firm once it has filed for Chapter 11.

This paper extends the existing CSR literature but looks at CSR not from the angel of financial “success” but rather from financial “failure”.

The results could potentially help academics and practitioners alike in seeking understanding and reason behind CSR involvement and bankruptcy avoidance and success.

This is the first paper to test whether CSR plays a role in bankruptcy. The authors use a recent sample of firms with CSR scores that experienced a bankruptcy and a matched sample of CSR-scored firms that did not experience bankruptcy.

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the organizational level (micro) and the regulatory system (macro).

We use a relevant case of municipal bankruptcy in Italy to discuss the influence of governance characteristics, such as the political and management structure, interaction, and behaviors. The issues related to the accounting system and external audits are also considered. The data for this study are obtained from secondary sources such as audited budgetary reports, public documents, and reports from the Supreme Audit Institution.

The study indicates that the spoils system can favor the politicians’ exercise of power over public managers and undermine the capacity to prevent and manage financial distress. Poor accounting and weak control systems may facilitate this process. The high turnover of top management throughout a mayor’s term in office may reflect political pressure to force accounting rules and achieve flexibility to obtain the expected results or to correct poor financial performance.

To avert municipal bankruptcies, regulations should consider enforcing ex ante control by external oversight bodies, forbidding risky operations and limiting the spoils system for financial management positions and internal auditors.

Municipal defaults around the world have indicated that regulations and audits are ineffective to prevent local governments from failing. A full understanding of complex mutual interactions between the mechanisms of governance and the behaviors of politicians and managers can provide valuable insights to prevent local governments from failing.

This research seeks to investigate the role of key corporate governance mechanisms in determining a firm's post‐bankruptcy performance following reorganisation.

The study is based on agency theory and uses a unique sample of 111 filing companies whose reorganisation plans have been confirmed by the Thai Central Bankruptcy Court during the period 1999‐2002.

The results indicate that monitoring and incentive mechanisms are significant determinants of a firm's post‐bankruptcy performance. The key monitoring mechanism is ownership concentration, measured by shares held by the largest shareholder, whereas the critical incentive mechanisms are cash compensation and percentage of common shares held by the plan administrator. The results indicate that these mechanisms can mitigate agency problems in previously insolvent companies and increase post‐bankruptcy performance over a three year period.

The study is timely given that many organisations are facing rebuilding programs following the impact of the global financial crisis. Prior research in Thailand and elsewhere has not measured bankruptcy reorganisation outcomes in terms of the difference of actual financial performance to predicted performance and in relation to the governance factors of the reorganisation process. Neither has this aspect been considered within an agency theory framework. This provides a unique opportunity to consider these variables based on the theoretical framework of agency theory and to evaluate the importance of governance mechanisms in reorganisation proceedings.

The incidence of important bankruptcy cases has led to a growing interest in corporate bankruptcy prediction models since the 1960s. Several past reviews of this literature are now either out‐of‐date or too narrowly focused. They do not provide a complete comparison of the many different approaches towards bankruptcy prediction and have also failed to provide a solution to the problem of model choice in empirical application. Seeks to address this issue.

Through an extensive literature review, this study provides a comprehensive analysis of the methodologies and empirical findings from these models in their applications across ten different countries.

The predictive accuracies of different models seem to be generally comparable, although artificially intelligent expert system models perform marginally better than statistical and theoretical models. Individually, the use of multiple discriminant analysis (MDA) and logit models dominates the research. Given that financial ratios have been dominant in most research to date, it may be worthwhile increasing the variety of explanatory variables to include corporate governance structures and management practices while developing the research model. Similarly, evidence from past research suggests that small sample size, in such studies, should not impede future research but it may lead researchers away from methodologies where large samples are critically necessary.

It is hoped that this study will be the most comprehensive to‐date review of the literature in the field. The study also provides a unique ranking system, the first ever of its kind, to solve the problem of model choice in empirical application of bankruptcy prediction models.

This paper aims to explain the weaknesses and inconsistencies inherent in the Dodd-Frank Act of 2010 (USA).

The approach is entirely theoretical and multi-disciplinary (and relies on some third-party empirical research), and it consists of a literature review, critique and the development of theories which are applicable across countries.

The Dodd-Frank Act is inefficient and inadequate as a response to the global financial crisis. The Dodd-Frank Act has not resulted in significant economic growth and has increased transaction costs and compliance costs for both government agencies and financial services companies.

The author developed the theories introduced in the paper.