Strategic and financial factors in business failure, bankruptcy and reorganization

This is a study of financial and strategic factors relating to the failure and bankruptcy of 73 firms that went bankrupt from 1980 to 1986. The characteristics of the bankrupt firms were compared with those of a matching sample of nonbankrupt firms. On average the bankrupt firms were weaker than the comparison firms six years before bankruptcy, but they pursued more aggressive growth strategies. The firms were approximately equally divided between four groups based on firm sales growth or decline and industry growth or decline. The typical decline pattern observed was asset and debt growth followed by decline in profitability. Some firms declined slowly over the entire study period and others collapsed rapidly following a short expansionary period. Of the 73 bankrupt firms, 40 firms were reorganized, but only 12 emerged from bankruptcy at least half their prebankruptcy size. The only significant predictor of successful reorganization was prebankruptcy size. In the course of the study bankruptcy prediction models and statistical classification techniques were extensively reviewed. The Altman bankruptcy model was tested and recalibrated. A new model using only two of the Altman variables, retained earnings as a fraction of total assets and the market value of equity to total liabilities ratio, proved to be an equally powerful predictor of bankruptcy. Theoretical and practical applications of the results are discussed.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Business Administration

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2011

Author dc:creator

• Moulton, Wilbur Norton

Contributors dc:contributor

• Thomas, Howard

• Business Administration, Management
• Economics, Finance

Statement dc:rights

• Copyright 1989 Moulton, Wilbur Norton

Language dc:language

eng

Identifier

AAI8916287
(UMI)AAI8916287

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/20429