The predictions of corporate failures Essay Example | Topics and Well Written Essays - 2500 words

The predictions of corporate failures - Essay Example Corporate failures gained higher rates in last two decades. There are lots of factors that lead businesses to fail. Those factors attributed by different economists are high interest rates, heavy debt burdens and recession-squeezed profits. There are lots of industry-specific factors such as government regulation and the nature of operations, can results into to a firm’s financial failures. Studies have found that small, private and newly opened companies with poor cash flow planning and ineffective controlling systems are more exposed to financial crisis than the large and well-established firms. It is very important to have robust and reliable models that predict corporate failure accurately and promptly. It is very important for the management to take either preventive or corrective measure to secure the interest of all the stakeholders. This study would go to discuss about different models for preventing corporate failures and the study would assess the strengths and weakn esses of those models. Financial satiability is very important for any corporate house. Corporate houses are having lots of stakeholders attached with it. It is also an important duty of Government and Financial regulating authorities to keep a close look on the financial health of firm. There are lots of models are there to take preventive actions but it is very important to chose the right one for the right problem. Every model has its own strength and weaknesses. Identification of the proper model for the specific crisis is very important things to follow for any corporate house to avoid corporate failures. Failure of one firm can cause for a serious disaster for all those stake holders related with that firm. According to Beaver (1966), who used classification test to identify different financial ratios for corporate failure predictions. Author used 30 financial ratios and 79 pairs of companies for test