Banks and corporate failure : prevention and prediction

Abstract

The definition of "corporate failure" is rather broad and ambiguous with the consequence that different authors have established different criteria in explaining failure. For instance Deakin (1972) defined failure"... to include only those firms which experienced bankruptcy, insolvency or were otherwise liquidated for the benefit of creditors" whereas Beaver (1966) distinguished failed companies by one of the following events" ... bankruptcy, bond default, an overdrawn bank account or non payment of a preferred stock dividend". For the purpose of this dissertation, the words FCs will be used in describing those companies, which for some reason or other are not operating successfully in their marketplace with the consequence that their respective banks have decided to call in their advance. These companies are not yet legally bankrupt, but as was explained in some interviews with banks' officials, such companies have been experiencing persistent financial difficulties and notwithstanding their bank's support were unable to turn such trend and were ultimately listed.