Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Predictors of corporate survival in the US and Australia: an exploratory case study

Predictors of corporate survival in the US and Australia: an exploratory case study The purpose of this paper is to investigate the relationship of financial ratios and non-financial factors of successful and failed corporations in the USA. Specifically, the authors provide evidence on whether financial ratios and non-financial factors can be jointly included as indicators to improve the predictive capacity of organisational success or failure in different countries and sectors.Design/methodology/approachThe paper utilises a mixed method exploratory case study focussing on listed corporations in the US and Australian manufacturing, agriculture, finance and property sectors.FindingsThe financial ratio findings demonstrate that (with the exception of the failed Australian manufacturing sector) the integrated multi-measure (IMM) ratio approach consistently provides a higher classification rate for the failed and successful groups than those provided by an individual measure. In all cases the IMM method scored higher for US companies (with the exception of the failed Australian property sector). The findings also show that irrespective of the country location or sector, non-financial factors such as board composition and managements’ involvement in organisational strategy impact on a corporation’s success or failure.Practical implicationsThe findings reveal that non-financial factors occur prior to financial ratios when attempting to predict organisational success or failure and the IMM approach enables a more thorough examination of the predictive ability of financial ratios for US and Australian organisations. This intuitively indicates that when combined with financial ratios, non-financial factors may be a useful predictor of corporate success or failure across countries and sectors.Originality/valueSound internal processes and the identification of both financial ratios and non-financial factors can be utilised to improve the reliability of financial failure models, enable corrective and preventative steps to be implemented by management and potentially reduce the costs of failure for US and Australian organisations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

Predictors of corporate survival in the US and Australia: an exploratory case study

Download PDF
20 pages

Loading next page...
 
/lp/emerald-publishing/predictors-of-corporate-survival-in-the-us-and-australia-an-wZDXF3G4Lq
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1755-425X
DOI
10.1108/jsma-06-2017-0044
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to investigate the relationship of financial ratios and non-financial factors of successful and failed corporations in the USA. Specifically, the authors provide evidence on whether financial ratios and non-financial factors can be jointly included as indicators to improve the predictive capacity of organisational success or failure in different countries and sectors.Design/methodology/approachThe paper utilises a mixed method exploratory case study focussing on listed corporations in the US and Australian manufacturing, agriculture, finance and property sectors.FindingsThe financial ratio findings demonstrate that (with the exception of the failed Australian manufacturing sector) the integrated multi-measure (IMM) ratio approach consistently provides a higher classification rate for the failed and successful groups than those provided by an individual measure. In all cases the IMM method scored higher for US companies (with the exception of the failed Australian property sector). The findings also show that irrespective of the country location or sector, non-financial factors such as board composition and managements’ involvement in organisational strategy impact on a corporation’s success or failure.Practical implicationsThe findings reveal that non-financial factors occur prior to financial ratios when attempting to predict organisational success or failure and the IMM approach enables a more thorough examination of the predictive ability of financial ratios for US and Australian organisations. This intuitively indicates that when combined with financial ratios, non-financial factors may be a useful predictor of corporate success or failure across countries and sectors.Originality/valueSound internal processes and the identification of both financial ratios and non-financial factors can be utilised to improve the reliability of financial failure models, enable corrective and preventative steps to be implemented by management and potentially reduce the costs of failure for US and Australian organisations.

Journal

Journal of Strategy and Management – Emerald Publishing

Published: Aug 10, 2018

Keywords: Failure; Success; Strategy; Financial; Corporation; Non-financial

References

  • Counts of Australian businesses, including entries and exits, June 2007 to June 2011
  • Financial ratios, discriminant analysis and the prediction of corporate bankruptcy
    Altman, E.I.
  • Predicting financial distress of companies: revisiting the z-score and zeta models
    Altman, E.I.
  • Financial distress prediction in an international context: a review and empirical analysis of Altman’s z-score model
    Altman, E.I.; Iwanicz-Drozdowska, M.; Laitinen, E.K.; Suvas, A.
  • The impact of US company internationalization on top management team advice networks: a tacit knowledge perspective
    Athanassiou, N.; Nigh, D.
  • Does it pay to plan? Strategic planning and financial performance
    Baker, G.A.; Leidecker, J.K.
  • Market prices, financial ratios, and the prediction of failure
    Beaver, W.H.
  • Have financial statements become less informative? Evidence from the ability of financial ratios to predict bankruptcy
    Beaver, W.H.; McNichols, M.F.; Rhie, J.W.
  • The case of multiple methods in empirical management accounting research (with an illustration from budget setting)
    Birnberg, J.G.; Shields, M.D.; Young, S.M.
  • Mixed methods research: a discussion paper
    Brannen, J.
  • Leading transition: a new model for change
    Bridges, W.; Mitchell, S.
  • The implications of strategy and social context for the relationship between top management team heterogeneity and firm performance
    Carpenter, M.A.
  • Top management teams, global strategic posture, and the moderating role of uncertainty
    Carpenter, M.A.; Fredrickson, J.W.
  • Testing a model of reasoned risk-taking: governance, the experience of principals and agents, and global strategy in high-technology IPO firms
    Carpenter, M.A.; Pollock, T.G.; Leary, M.
  • Cash flow – it’s not the bottom line
    Casey, C.J.; Bartczak, N.J.
  • Prediction of corporate financial health by artificial neural network
    Chakraborty, S.; Sharma, S.K.
  • Predicting corporate failure: empirical evidence for the UK
    Charitou, A.; Neophytou, E.; Charalambous, C.
  • Turnarounds: a stage theory perspective
    Chowdhury, S.D.
  • Predicting bankruptcy in the Worldcom Age: how to determine when it is safe to grant credit
    Chuvakhin, N.; Gertmenian, W.
  • Corporate governance characteristics and default prediction modeling for small enterprises. an empirical analysis of Italian firms
    Ciampi, F.
  • Why do most firms die young?
    Cressy, R.
  • The business failure process: towards an integrative model of the literature
    Crutzen, N.; Van Caillie, D.
  • CEO and director turnover in failing firms: an illusion of change?
    Daily, C.M.; Dalton, D.R.
  • On the measurements of board composition: poor consistency and a serious mismatch of theory and operationalization
    Daily, C.M.; Johnson, J.L.; Dalton, D.R.
  • Strategic supremacy through disruption and dominance
    D’Aveni, R.A.
  • Ratio stability and corporate failure
    Dambolena, I.G.; Khoury, S.J.
  • Building theories from case study research
    Eisenhardt, K.M.
  • Corporate governance and financial constraints on strategic turnarounds
    Filatotchev, I.; Toms, S.
  • Power in top management teams: dimensions, measurement and validation
    Finkelstein, S.
  • Integrating case study and survey research methods: an example in information systems
    Gable, G.G.
  • Predicting financial distress: a comparison of survival analysis and decision tree techniques
    Gepp, A.; Kumar, K.
  • Business failure prediction using decision trees
    Gepp, A.; Kumar, K.; Bhattacharya, S.
  • Corporate governance and equity prices
    Gompers, P.; Ishii, J.L.; Metrick, A.
  • Large corporate failures as downward spirals
    Hambrick, D.C.; D’Aveni, R.A.
  • Top team deterioration as part of the downward spiral of large corporate bankruptcies
    Hambrick, D.C.; D’Aveni, R.A.
  • Managerial discretion: a bridge between polar views of organizational outcomes
    Hambrick, D.C.; Finkelstein, S.
  • Upper echelons: the organization as a reflection of its top managers
    Hambrick, D.C.; Mason, P.A.
  • Executive job demands: new insights for explaining strategic decisions and leader behaviours
    Hambrick, D.C.; Finkelstein, S.; Mooney, A.
  • Elephants and fleas: is your organization prepared for change?
    Handy, C.
  • Exploring a general management approach to farm management
    Harling, K.F.; Quail, P.
  • Leadership in a (permanent) crisis
    Heifetz, R.; Grashow, A.; Linsky, M.
  • CEO successor characteristics and the choice of foreign market entry mode: an empirical study
    Herrmann, P.; Datta, D.
  • A ratio-based multi-level modelling approach for the signaling corporate collapse: a study of Australian corporations
    Hossari, G.
  • Characteristics required for success in management of agribusiness firms: an international perspective
    Howard, W.H.; Litzenberg, K.K.; Schneider, V.E.; Fairnie, I.J.
  • Leadership style—the X Generation and Baby Boomers compared in different cultural contexts
    Hu, H.; Miller, P.J.
  • Board composition, grey directors and the incidences of corporate failure in the UK
    Hwa-Hsien, H.; Yu-Hsuan, W.
  • Multiple methods in American sociological review
    Jacobs, J.A.
  • Financial performance of publicly-traded agribusinesses
    Katchova, A.L.; Enlow, S.J.
  • The discipline of teams
    Katzenbach, J.R.; Smith, D.K.
  • Bankruptcy prediction in banks and firms via statistical and intelligent techniques—a review
    Kumar, P.R.; Ravi, V.
  • The race of top management teams in formulating and implementing turnaround strategies: a review and research agenda
    Lohrke, F.T.; Bedeian, A.G.; Palmer, T.B.
  • A nonfinancial business success versus failure prediction model for young firms
    Lussier, R.N.
  • There are few differences between successful and failed small businesses
    Lussier, R.N.; Corman, J.
  • A crossnational prediction model for business success
    Lussier, R.N.; Pfeifer, S.
  • An analysis of non-financial factors associated with financial distress
    Madrid-Guijarro, A.; Garcia-Perez-de-Lema, D.; van Auken, H.
  • Turning great strategy into great performance
    Mankins, M.C.; Steele, R.
  • US housing finance: a clash of economics and politics
    Matthews, W.; Driver, R.
  • Bankruptcy as a deliberate strategy: theoretical considerations and empirical evidence
    Moulton, W.N.; Thomas, H.
  • Cash flow ratios as indicators of corporate failure
    Murty, A.V.N.; Misra, D.P.
  • Improving performance of corporate rating prediction models by reducing financial ratio heterogeneity
    Niemann, M.; Schmidt, J.H.; Neukirchen, M.
  • The enactment of economic adversity a reconciliation of theories of failure-induced change and threat-rigidity
    Ocasio, W.
  • Financial ratios and the probabilistic prediction of bankruptcy
    Ohlson, J.
  • Failure processes and causes of company bankruptcy: a typology
    Ooghe, H.; Prijcker, S.
  • Oorzaken van faling: literatuuroverzicht en conceptueel verklaring model
    Ooghe, H.; Waeyaert, N.
  • Walking the talk? What employers say versus what they do
    Pager, D.; Quillian, R.I.
  • Are organisations destined to fail? A multiple case study analysis of non-financial factors as predictors of financial failure
    Purves, N.C.
  • On the relationship between financial and non-financial factors: a case study analysis of financial failure predictors of agribusiness firms in Australia
    Purves, N.C.; Niblock, S.; Sloan, K.
  • Are organizations destined to fail?
    Purves, N.C.; Niblock, S.; Sloan, K.
  • Management differences and dairy results
    Rosenberg, H.R.; Cowen, P.
  • The impact of liquidity and solvency on cost efficiency
    Russell, L.A.; Langemeier, M.R.; Briggeman, B.C.
  • Board of directors’ effects on financial distress evidence of family owned businesses in Lebanon
    Salloum, C.; Azoury, N.M.; Azzi, T.M.
  • Riding the wrong wave: organizational failure as a failed turnaround
    Sheppard, J.P.; Chowdhury, S.D.
  • Corporate failures: why organizations fail to learn
    Shukla, M.
  • Forecasting bankruptcy more accurately: a single hazard model
    Shumway, T.
  • Management development evaluation and effectiveness
    Smith, A.
  • Mixed research methods
    Spratt, C.; Walker, R.; Robinson, B.
  • Company failure in South Africa and prediction by means of recursive partitioning
    Steyn-Bruwer, B.W.; Hamman, W.D.
  • Predicting financial distress and corporate failure: a review from the state-of-the-art definitions, modeling, sampling and featuring approaches
    Sun, J.; Li, H.; Huang, Q.; He, K.
  • A quadratic interval logit model for forecasting bankruptcy
    Tseng, F.; Lin, L.
  • The role of financial ratios in signaling financial distress: evidence from Thai listed companies
    Tuvadaratragool, S.