Purpose

The purpose of this study is to analyze the business-failure-process risk from two perspectives. First, a simplified model of the loss-generation process in a failing firm is developed to show that the linear system embedded in accounting makes financial ratios to depend linearly on each other. Second, a simplified model of the development of the risk during the failure process is developed to introduce a new concept of failure-process-risk line (FPRL) to assess the systematic failure risk of a firm. Empirical evidence from Finnish firms is used to test two hypotheses.

Design/methodology/approach

This study makes use of simple mathematical modeling to depict the loss-generation process and the development of failure risk during the failure process. Hypotheses are extracted from the mathematical results for empirical testing. Time-series data originally from 13,082 non-failing and 515 failing Finnish are used to test the hypotheses. Analysis of variance F statistics and Mann–Whitney U test are used in testing of the hypotheses.

Findings

The findings show that the linear time-series correlations are generally higher in failing than in non-failing firms because of the loss-generation process. The FPRL depicted efficiently the systematic failure-process risk through the beta coefficient. Beta coefficient efficiently discriminated between failing and non-failing firms. The difference between the last-period risk estimate and FPRL was largely determined by the approximated growth rate of the periodic failure risk.

Research limitations/implications

The loss-generation process is based on a simple cash-based approach ignoring the growth of the firm. In future research, the model could be generalized to a growing firm in an accrual-based framework. The failure-process risk is assumed to grow at a constant rate. In further studies, more general models could be applied. Empirical analyses are based on simple statistical methods and tests. More advanced methods could be used to analyze the data.

Practical implications

This study shows that failure process makes the time-series correlation between financial ratios to increase making their signals of failure consistent and allowing the use of static classification models to assess failure risk. The beta coefficient is a useful tool to reflect systematic failure-process risk. In addition, it can be used in practice to warn a firm about ongoing failure process.

Originality/value

To the best of the author’s knowledge, this is the first study analyzing systematically business-failure-process risk. It is first in introducing a mathematical loss-generation process and the FPRL based on the beta coefficient assessing the systematic failure risk.

中文翻译：

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分析业务失败流程风险：来自芬兰的证据

目的

本研究的目的是从两个角度分析业务失败流程风险。首先，开发了一个失败公司损失产生过程的简化模型，以表明嵌入会计的线性系统使财务比率相互线性依赖。其次，开发了故障过程中风险发展的简化模型，以引入故障-过程-风险线（FPRL）的新概念来评估公司的系统故障风险。芬兰公司的经验证据用于检验两个假设。

设计/方法/方法

本研究利用简单的数学模型来描述损失产生过程和失效过程中失效风险的发展。假设是从数学结果中提取出来的，用于实证检验。最初来自 13,082 名未失败和 515 名失败芬兰语的时间序列数据用于测试假设。方差分析F统计量和 Mann-Whitney U检验用于检验假设。

发现

研究结果表明，由于损失产生过程，失败的线性时间序列相关性通常高于非失败的公司。FPRL 通过β 系数有效地描述了系统故障过程风险。Beta 系数有效地区分了失败和非失败的公司。上期风险估计与 FPRL 之间的差异主要取决于周期性故障风险的近似增长率。

研究限制/影响

产生亏损的过程基于一种简单的基于现金的方法，忽略了公司的增长。在未来的研究中，该模型可以推广到基于权责发生制的框架中的成长型公司。假定故障过程风险以恒定速率增长。在进一步的研究中，可以应用更通用的模型。实证分析基于简单的统计方法和测试。可以使用更高级的方法来分析数据。

实际影响

这项研究表明，失败过程使财务比率之间的时间序列相关性增加，使它们的失败信号一致，并允许使用静态分类模型来评估失败风险。Beta 系数是反映系统故障过程风险的有用工具。此外，它可以在实践中用于警告公司正在进行的失败过程。

原创性/价值

据作者所知，这是第一项系统地分析业务失败流程风险的研究。它首先引入了数学损失生成过程和基于评估系统故障风险的 beta 系数的 FPRL。