This research closes a gap in literature, by exploring the causes of corporate-failure (CF) in order to make an induction as to the recurring themes in CF.
The questions to be answered by the research includes:
1. What are the causes of corporate failure?
2. Do the causes of failures vary by time or industry?
3. Who is to blame?
4. Are failures of any economic benefit? (The debate on bailouts)
The research topic and questions are important because of the ripple effect of failures on economies and the society, in addition to the fact the rate of failures increased following the financial crisis.
The literature-review adopts a top-down approach, through a broad and in-depth look at literature, thereby examining what caused the downfall of The Medici-Bank, The South-Sea Company, The Mississippi-Company, Enron, Arthur-Andersen and Lehman-Brothers. Furthermore the bankruptcy of General-Motors is examined, in addition to themes that could have led to failure at Goldman-Sachs and Ernst & Young.
A post-positivist and interpretative philosophy is applied in the conducting primary research as they permitted flexibility & favoured the qualitative nature of the investigation. Therefore purposive-sampling was used in data collection in an interview with experts in the field of bankruptcies and liquidations.
The findings & discussion indicate that a lack of liquidity, bad-management, rapid-expansion, externalities, fraud and the economic cycle are all causes & recurrent themes in failures. Moreover, it indicates that the causes of failures do vary to a degree by time and by industry and that ultimately directors are to be blamed for CF, with the government having some blame where there is a change in policy. Furthermore, there are some benefits to CF. Nevertheless, governments should only bail-out economic critical companies.
In conclusion, ultimately human nature is to blame for the causes of CF. Author keywords: Corporate failure, failure, corporations, companies, bankruptcy