Browsing by Subject "Financial distress"

Now showing 1 - 2 of 2
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    A review of the limitations of financial failure prediction research
    (Universidad de Murcia, Servicio de Publicaciones, 2023) Laitinen, Erkki K.; Camacho-Miñano, María-del-Mar; Muñoz-Izquierdo, Nora
    The objective of this paper is to critically evaluate the main weaknesses associated with the limitations of financial failure prediction research studies. For more than 80 years, researchers have unsuccessfully studied ways to create a general theory of financial failure, which is useful for prediction. In this paper, we review the main boundaries of failure prediction research through a critical evaluation of previous papers and our own approach from the research experience. Our findings corroborate that these studies suffer from a lack of theoretical and dynamic research, an unclear definition of failure, deficiencies with the quality of financial statement data and a shortfall in the diagnostic analyses of failure. The most relevant implications for future research in this area are also outlined. This is the first study to analyse in deep the caveats of financial failure prediction studies, a crucial topic nowadays due to the hints of an economic crisis caused by the Covid-19 pandemic.
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    Corporate governance effect on financial distress likelihood: Evidence from Spain
    (2016) Manzaneque, Montserrat; Priego, Alba María; Merino, Elena
    The paper explores some mechanisms of corporate governance (ownership and board characteristics) in Spanish listed companies and their impact on the likelihood of financial distress. An empirical study was conducted between 2007 and 2012 using a matched-pairs research design with 308 observations, with half of them classified as distressed and non-distressed. Based on the previous study by Pindado, Rodrigues, and De la Torre (2008), a broader concept of bankruptcy is used to define business failure. Employing several conditional logistic models, as well as to other previous studies on bankruptcy, the results confirm that in difficult situations prior to bankruptcy, the impact of board ownership and proportion of independent directors on business failure likelihood are similar to those exerted in more extreme situations. These results go one step further, to offer a negative relationship between board size and the likelihood of financial distress. This result is interpreted as a form of creating diversity and to improve the access to the information and resources, especially in contexts where the ownership is highly concentrated and large shareholders have a great power to influence the board structure. However, the results confirm that ownership concentration does not have a significant impact on financial distress likelihood in the Spanish context. It is argued that large shareholders are passive as regards an enhanced monitoring of management and, alternatively, they do not have enough incentives to hold back the financial distress. These findings have important implications in the Spanish context, where several changes in the regulatory listing requirements have been carried out with respect to corporate governance, and where there is no empirical evidence regarding this respect.