Bankruptcy factors at different stages of the lifecycle for Russian companies


Abstract


Many aspects of bankruptcy have not yet been thoroughly studied, among such issues are the causes that lead to bankruptcy at various stages of the company's lifecycle. We hypothesize that the most significant factors influencing the probability of company bankruptcy at a particular stage of its lifecycle are those the effectiveness of which is at the lowest level at this stage. These factors include the external environment, the quality of financial, and corporate governance. The methodology of the research consists of the methods PLS-SEM (to determine the impact of factors on bankruptcy) and DEA (to evaluate the effectiveness of factors usage). The empirical database includes 376 Russian public companies. The simulation results support the hypothesis. We also revealed that the external environment exerts a more powerful effect on the probability of bankruptcy at the stage of growth. The role of financial management increases from the initial stage to the final stage of the life cycle. Corporate governance is less important than the other two factors, but its impact is significant at the stage of growth.

DOI Code: 10.1285/i20705948v15n1p187

Keywords: bankruptcy prediction; corporate governance; external environment; financial management; company life cycle

References


Adizes I. 1979. Organizational Passages: Diagnosing and Treating Life Cycle Problems in Organizations. Organizational Dynamics, 8: 3-24

Alifiah, M. N. 2014. Prediction of financial distress companies in the trading and services sector in Malaysia using macroeconomic variables. Procedia-Social and Behavioral Sciences 129: 90-98.

Al-Hadi, A. et al. 2017 Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting and Finance.

Anthony, J.; Ramesh, K. 1992. Association between accounting performance measures and stock prices. Journal of Accounting and Economics 15(2-3): 203-227.

Antunes, F., Ribeiro, B., & Pereira, F. 2017. Probabilistic modeling and visualization for bankruptcy prediction. Applied Soft Computing Journal, 60: 831–843

Ben Jabeur, S. 2017. Bankruptcy prediction using Partial Least Squares Logistic Regression. Journal of Retailing and Consumer Services, 36: 197–202

Boratyńska, K., Grzegorzewska, E. 2018 Bankruptcy prediction in the agribusiness sector: Lessons from quantitative and qualitative approaches Journal of Business Research 89: 175–181

Bredart, X. 2014. Financial Distress and Corporate Governance: The Impact of Board Configuration. International Business Research 7(3): 72-80.

Bruneau, C.; de Bandt, O.; El Amri, W. 2012. Macroeconomic fluctuations and corporate financial fragility. Journal of Financial Stability 8(4): 219-235.

Cao, Y.; Chen, X. 2012. An agent-based simulation model of enterprises financial distress for the enterprise of different life cycle stage. Simulation Modelling Practice and Theory 20(1): 70-88.

Carter, D. A.; Simkins, B. J.; Simpson, W. G. 2003. Corporate Governance, Board Diversity and Firm Value. The Financial Review 38(1): 33-53.

Chan, C.-Y.; Chou, D.-W.; Lin, J.-R.; Liu, F.-Y. 2016. The role of corporate governance in forecasting bankruptcy: Pre- and post-SOX enactment. North American Journal of Economics and Finance 35: 166-188.

Chang, H.-Y.; Amber, Y.-P. L. 2015. The relationship between business diversification and productivity: considering the impact of process innovation at different corporate life cycles. Technology Analysis & Strategy Management 28(7): 827-840.

Cheng, S.; Evans, J.; Nagarajan, N. 2008. Board size and firm performance: The moderating effects of the market for corporate control. Review of Quantitative Finance and Accounting 31(2): 121-145.

Chin, W.W.; Peterson, R.A; Brown, P.S. (2008), Structural equation modelling in marketing: some practical reminders, Journal of Marketing Theory and Practice, 16 (4): 287-298.

Chou, J.; Ng, L.; Siblikiv, V.; Wang, Q. 2011. Product market competition and corporate governance. Review of Development Finance 1(2): 114-130.

Coltman, T.; Devinney, T.M.; Midgley, D.F.; Veniak, S. (2008). Formative versus reflective measurement models: Two applications of formative measurement. Journal of Business Research, 61(12): 1250-1262.

Coulton, J. J.; Ruddock, C. 2011. Corporate payout policy in Australia and a test of the life-cycle theory. Accounting and Finance 51(2): 381-407.

Daily, C. M.; Dalton, D. R. 1994. Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal 37(6): 1603-1617.

Delas, V.; Nosova, E.; Yafinovych, O. 2015. Financial Security of Enterprises. Procedia Economics and Finance 27: 248-266.

Deng, X.; Wang, Z. 2006. Ownership structure and financial distress: Evidence from public-listed companies in China. International Journal of Management 23(3) 486-502.

Dickinson V. (2006). Future Profitability and the Role of From Life Cycle. Working paper, School of Business, University of Wisconsin

du Jardin, P. 2016. A two-stage classification technique for bankruptcy prediction. European Journal of Operational Research 254(1): 236–252.

du Jardin, P.; Séverin, E. 2011. Predicting corporate bankruptcy using a self-organizing map: An empirical study to improve the forecasting horizon of a financial failure model. Decision Support Systems 51(3): 701-711.

Duffie, D.; Saita, L.; Wang, K. 2007. Multi-period corporate default prediction with stochastic covariates. Journal of Financial Economics 83(3): 635-665.

Erhardt, N. L.; Werbel, J. D.; Shrader, C. B. 2003. Board of director diversity and firm financial performance. Corporate Governance: An International Review 11(2): 102-111.

Fedorova, E.; Gilenko, E.; Dovzhenko, S. 2013. Bankruptcy prediction for Russian companies: Application of combined classifiers. Expert Systems with Applications 40(18): 7285–7293.

Flamholtz E. G. 1986. Managing The Transition From An Entrepreneurship To A Professionally Managed Firm. Jossey_Bass:San Francisco, CA.

Fornell, C.; Larcker, D. F. 1981. Evaluating Structural Equation Models with Unobservable Variables and Measurement Error. Journal of Marketing Research 18(1): 39-50.

Ghofar, A.; Islam, S. 2015. Corporate governance and contingency theory: A structural equation modelling approach and accounting risk implication. Springer.

Grabowski H., Mueller D. (1975). Life-Cycle Effects on Corporate Returns on Retentions. The Review of Economics and Statistics 57(4): 400-409.

Grant, R. M. 1996. Towards a Knowledge-based Theory of the Firm. Strategic Management Journal 17(2): 109-122.

Hair, J. F.; Hult, T.; Ringle, C. M.; Sarstedt, M. 2013. A Primer on Partial Least Squares Structural Equation Modeling. London: Sage Publications.

Hanks, S. H. 2015. The organization life cycle: Integrating content and process. Journal of Small Business Strategy 1(1): 1-12.

Hasan, M. M.; Hossain, M.; Cheung, A.-K.; Habib, A. 2015. Corporate life cycle and cost of equity capital. Journal of Contemporary Accounting & Economics 11(1): 46-60.

Henseler, J.; Ringle, C. M.; Sarstedt, M. 2015. A New Criterion for Assessing Discriminant Validity in Variance-based Structural Equation Modeling. Journal of the Academy of Marketing Science 43(1): 115-135.

Heo, J., & Yang, J. Y. 2014. AdaBoost based bankruptcy forecasting of Korean construction companies. Applied Soft Computing Journal, 24: 494–499

Karas, M.; Režňáková, M. 2014. To what degree is the accuracy of a bankruptcy prediction model affected by the environment? The case of the Baltic States and the Czech Republic. Procedia - Social and Behavioral Sciences 156: 564-568.

Kiel, G. C.; Nicholson, G. J. 2003. Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate Governance: An International Review 11(3): 189-205.

Koh, S., Durand, R.B., Dai, L., Chang, M. 2015. Financial distress: Lifecycle and corporate restructuring. Journal of Corporate Finance, 33: 19–33

Korol, T.; 2013. Early warning models against bankruptcy risk for Central European and Latin American enterprises. Economic Modelling 31: 22-30.

Larmou, S.; Vafeas, N. 2010. The relationship between board size and firm performance in firms with a history of poor operating performance. Journal of Management & Governance 14(1): 61-85.

Lee, S.; Choi, W. S. 2013. A multi-industry bankruptcy prediction model using back-propagation neural. Expert Systems with Applications 40(8): 2941–2946.

Lee, T.-S.; Yeh, Y.-H. 2004. Corporate governance and financial distress: Evidence from Taiwan. Corporate Governance: An International Review 12(3): 378–388.

Levie J., Lichtenstein B. From “Stages” of Business Growth to a Dynamic States Model of Entrepreneurial Growth and Change, Hunter Center for Entrepreneurship, University of Strathclyde, Working paper, 2008

Lewis V.L., Churchill N. (1983). The five stages of small business growth// Harvard business review 61 (3): 30-50

Liang, D.; Lu, C.-C.; Tsai, C.-F.; Shih, G.-A. 2016. Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research 252(2): 561-572.

Liao, W.-C.; Shyu, J.; Chien, S.-M. 2014. A Corporate Life Cycle Analysis on the Relationship between Ownership Structure and Performance: Evidence from the Taiwan Stock Exchange. Asia Pacific Management Review 19(2): 173-186.

Lin, K.C., Dong, X. 2018. Corporate social responsibility engagement of financially distressed firms and their bankruptcy likelihood. Advances in Accounting 43: 32–45

Mak, Y. T.; Kusnadi, Y. 2005. Size really matter: Further evidence on the negative relationship between board of size and firm Value. Pacific-Basin Finance Journal 13(3): 301-318.

Massingham, P. 2014. An evaluation of knowledge management tools: Part 1 – managing knowledge resources. Journal of Knowledge Management, 18(6): 1075-1100.

Maximilian, R.; Dennis, S.,2016. The role of governments in hostile takeovers. Evidence from regulation, anti-takeover provisions and government interventions. International Review of Law and Economics 47: 1-15.

Miller, D.; Friesen, P. H. 1984. A longitudinal study of the corporate life cycle. Management science 30(10): 1161-1183.

Mokhova, N.; Zinecker, M. 2013. Liquidity, probability of bankruptcy and the corporate life cycle: the evidence from Czech Republic. International Journal of Globalization and Small Business 5(3): 189-208.

Mousavi, M. M.; Ouenniche, J.; Bing, X. 2015. Performance evaluation of bankruptcy prediction models: An orientation-free super-efficiency DEA-based framework. International Review of Financial Analysis 42: 64–75.

Nikolov, B.; Whited, T. M. 2014. Agency conflicts and cash: estimates from a dynamic model. Journal of Finance 69(5): 1883-1921.

Ninh, B. P. V., Do Thanh, T., Hong, D.V. 2018 Financial distress and bankruptcy prediction: An appropriate model for listed firms in Vietnam. Economic Systems 42(4): 616–624.

Nyitrai, T., & Virág, M. 2018. The effects of handling outliers on the performance of bankruptcy prediction models. Socio-Economic Planning Sciences, 1–9

O'Connor, T.; Byrne, J. 2015. Governance and the Corporate Life-Cycle. International Journal of Managerial Finance 11(1): 23-43.

Ooghe, H.; de Prijcker, S. 2008. Failure processes and causes of company bankruptcy: a typology. Management Decision 46(2): 223-242.

Owen, S.; Yawson, A. 2010. Corporate Life Cycle and M&A Activity. Journal of Banking and Finance 34(2): 427-440.

Oz, I. O., Simga-Mugan, C. 2018. Bankruptcy prediction models' generalizability: Evidence from emerging market economies. Advances in accounting, 41(C): 114-125.

Pai, P.-F.; Hsu, M.-F.; Lin, L. 2014. Enhancing decisions with life cycle analysis for risk management. Neural Computing and Applications 24(7-8): 1717-1724.

Parker, S.; Peters, G. F.; Turestky, H. F. 2002. Corporate governance and corporate failure: A survival analysis. Corporate Governance: The International Journal of Business in Society 2(2): 4-12.

Pelled, L. H.; Eisenhardt, K. M.; Xin, K. R. 1999. Exploring the black box: an analysis of work group diversity, conflict, and performance. Administrative Science Quarterly 44(1): 1-28.

Platt, H.; Platt, M. 2012. Corporate board attributes and bankruptcy. Journal of Business Research 65(8): 1139-1143.

Premachandra, I. M.; Chen, Y.; Watson, J. 2011. DEA as a tool for predicting corporate failure and success: A case of bankruptcy assessment. Omega 39(6): 620–626.

Quinn R. E., Cameron K. (1983). Organizational life cycles and shifting criteria of effectiveness: Some preliminary evidence. Management science 29(1): 33-51

Ringle, C. M.; Wende, S.; Becker, J.-M. 2015. SmartPLS 3. Hamburg: SmartPLS GmbH.

Rose, C. 2007. Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review 15(2): 404-413.

Salehi, M.; Mousavi, S.; Bolandraftar, P. 2016. Predicting corporate financial distress using data mining techniques: an application in Tehran Stock Exchange. International Journal of Law and Management 58(2): 216-230.

Salloum, C.; Azoury, N. 2012. Corporate governance and firms in financial distress: evidence from a Middle Eastern country. International Journal of Business Governance and Ethics 7(1): 1-17.

Saravia, J. A. 2014. The lifecycle of the firm, corporate governance and investment performance. Corporate Ownership and Control 11(2): 224-238.

Serrano-Cinca, C.; Fuertes-Callén, Y.; Gutiérrez-Nieto, B.; Cuellar-Fernández, B. 2014. Path modelling to bankruptcy: Causes and symptoms of the banking crisis. Applied Economics 46(31): 3798-3811.

Sharif, S. P.; Lai, M. M. 2015. The effects of corporate disclosure practices on firm performance, risk and dividend policy. International Journal of Disclosure and Governance 12(4): 311-326.

Shrader, C. B.; Blackburn, V.; Iles, P. 1997. Women in management and firm financial performance: An explorative study. Journal of Managerial Issues 9(3): 355-372.

Shyu, J.; Chen, Y.-L. 2009. Diversification, Performance, and the Corporate Life Cycle. Emerging Markets Finance & Trade 45(6): 57-68.

Sueyoshi, T.; Goto, M. 2009. DEA–DA for bankruptcy-based performance assessment: Misclassification analysis of Japanese construction industry. European Journal of Operational Research 199(2) 576-594.

Teece, D.; Pisano, G. 1994. The Dynamic Capabilities of Firms: An Introduction. Industrial and Corporate Change 3(3): 537-556.

Tian, G.; Tian, Y.; Twite, G. 2009. Corporate governance, external market discipline and firm productivity. Journal of Corporate Finance 17(3): 403-417.

Tinoco, M. H.; Wilson, N. 2013. Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables. International Review of Financial Analysis 30: 394–419.

Vlamis, P. 2007. Default risk of UK real estate companies: is there a macro-economy effect? The Journal of Economic Asymmetries 4(2): 99-117.

Zelenkov Y., Fedorova E., Chekrizov D 2017. Two-step classification method based on genetic algorithm for bankruptcy forecasting. Expert Systems with Applications. 88: 393-401.

Zięba, M.; Tomczak, S. K.; Tomczak, J. M. 2016. Ensemble boosted trees with synthetic features generation in application to bankruptcy prediction. Expert Systems with Applications 58: 93-101.


Full Text: pdf
Bookmark and Share


Creative Commons License
This work is licensed under a Creative Commons Attribuzione - Non commerciale - Non opere derivate 3.0 Italia License.