CORPORATE FAILURE: CAUSES, REMEDIES, AND FAILURE PREDICTION MODELS

O. S. Uwakaeme

Abstract


There is an implicit belief that exposure of a number of serious managerial inadequacy, economic downturns,  financial frauds, among others, in high-performing listed companies in recent past years, has motivated investors to move their funds to more reputable investment institutions. Clearly, bankruptcy, or cor­porate failure or insolvency, resulting in huge losses has made investors wary of the lack of transparency and the increased risk of financial loss. Most banks’ customers have lost their confidence in banks as a result of bank failures. The paper also makes it clearer that a firm filing for corporate insolvency does not necessarily mean a failure to pay off its financial obligations when they mature. An appropriate risk-monitoring system, based on well-developed failure prediction models, is crucial to several stakeholders in the investment community to ensure a sound financial future stability for clients and firms alike. This paper has theoretically attempted to review and analyze the potential implications, causes, remedies and prediction models that can help investors and other stakeholders prevent corporate failures. The article also provides analysis of terms related to bankruptcy and describes common models of bankruptcy predic­tion that may allay the fears of investors and reduce uncertainty.

Keywords


corporate failure; bankruptcy; distress; receivership; liquidation; failure prediction

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