Do Firm Failure Processes Differ Across Countries: Evidence From Finland and Estonia

Abstract

Abstract. This study considers the novel topic of comparing firm failure processes between different countries. For seventy bankrupt Finnish firms corresponding pairs are found among Estonian bankrupt firms based on industry, size and time of bankruptcy. Despite the similarity of firms from two countries, the analysis shows remarkable differences in both pre-failure financial data and reasons for failure. Based only on financial data, five failure processes are detected for Finnish and six for Estonian firms. Established failure processes associate with different failure reasons. The study contributes to literature by showing that for similar companies failure processes can differ across countries. In practice, the established information about different failure processes can be applied when building or using bankruptcy prediction models.

Failure processes of young manufacturing micro firms in Europe

“…In recent research, the small firms and inter-country differences have been studied (e.g. Laitinen and Lukason, 2014;Laitinen et al, 2014a), although the focus is still on older firms. Past studies have not focussed on the failure processes of young micro firms covering their whole life cycle, especially in the context of specific industries.…”

“…Also, other terms like pathway (Moulton et al, 1996), downward spiral (Hambrick and D'Aveni, 1988) and trajectory (Argenti, 1976) have been used to portray failure process. Some researchers have concentrated on the causes bringing to collapse (Crutzen and Van Caillie, 2010), others on financial symptoms (Laitinen, 1991;Laitinen et al, 2014a), and some have used both conjointly (Laitinen and Lukason, 2014). Still, in the narrow range of available studies, financial variables seem to be more frequently applied than failure causes.…”

Firm Bankruptcy Probability and Causes: An Integrated Study

“…According to Weitzel & Jonsson (1989), the firm decline process consists of five stages and successful reorganization/turnaround is not possible only at the very last stage. Still, the failure process can vary widely depending on the age, industry, size, and national location for similar firms (Hambrick & D'Aveni, 1988;Laitinen, 1991;Ooghe & de Prijcker, 2008;Laitinen & Lukason, 2014). This study assumes that some failure processes will be more gradual than others, and we wish to take this process into account in examining the relationship between failure causes and the onset of bankruptcy.…”

What causes organizations to fail? A review of literature to inform future food sector (management) research

“…The micro level of the model considers the importance of the individual whether that is the managers and/or employees and their responsibility to ensure the organization survives rather than fails. Managers are the principal micro level factor that causes organizations to fail, because they are responsible for key decision-making within the organization and operationalizing and implementing strategic organizational plans (Arasti, 2011;Laitinen & Lukason, 2014;Gémar, Moniche, & Morales, 2016;Purves, Niblock & Sloan, 2016). Aspects such as managers' overconfidence, lack of qualification, little or no experience in the business area, lack of organizational skills and a lack of focus on strategy all play a part in reducing the efficiency of the manager within an organization.…”

“…Further, during periods of economic crisis organizations cannot attract new investors and/or consumers, therefore, paralyzing their growth rate (Gok, Deshpande, S., Deshpande, A. P., & Hunter, 2012;Laitinen & Lukason, 2014;Gémar, Moniche & Morales, 2016;Nummela, Saarenketo & Loane, 2016;Petković, Jäger & Sašić, 2016;Pardo & Alfonso, 2017).…”