The Journal of Economics, Marketing and Management (융합경영연구)

International Convergence Management Association (국제융합경영학회)
권호 표지
DOI QR코드

DOI QR Code

A Causal Analysis of Conglomerate Bankruptcies

  • KU, Sang-Wuk (Department of Convergence Studies, Pai Chai University) ;
  • WHANG, Yun-Oh (College of Business Administration, University of Pittsburgh)
  • Received : 2019.11.15
  • Accepted : 2020.03.04
  • Published : 2020.03.30
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - Strategic causes for the failure include unrealistic growth, overexpansion, unfamiliar new markets, volume obsession, unrealistic promises and poor project selection. Organizational causes are insufficient capital and profits, lack of business knowledge, poor financial management, poor sales skills, inadequate marketing, poor leadership, poor leadership transfer, project losses, poor field performance and owner bankruptcy. Uncontrollable causes include industry and economic weakness and banking and surety changes. While helpful, the list provides insufficient clarity regarding the causal roots of failure. Research design, data and methodology - The research framework to organize the information involved with many of the recent and large failures in the industry. Results - This research then identified five dominant root causes - excessive egoism, poor strategic leadership, too much change, loss of discipline and inadequate capitalization. Conclusion - Finally, additional input from external forces may accelerate the firm's pace to failure. It is important on the development of diagnostic tools that are based on this model and that will provide new ways to assess a conglomerate's level of risk for incurring a financial crisis.

Keywords

References

  1. Adler, B.E. (1993). Financial and political theories of American corporate bankruptcy. Stanford Law Review, 311-346.
  2. Adnan, A.T.M., Hossain, A., Adnan, A., & Hossain, A. (2016). Impact of M&A announcement on acquiring and target firm's stock price: An event analysis approach. International Journal of Finance and Accounting, 5(5), 228-232.
  3. Akintoye, A., Beck, M., & Hardcastle, C. (Eds.). (2008). Public-private partnerships: managing risks and opportunities. John Wiley & Sons.
  4. Aziz, S., Lilti, J., & Elbadraoui, K. (2016). Tracing the M&A footprints in bailouts and credit ratings of European banks during the 2008 financial crisis. Available at SSRN 2748576.
  5. Battiston, S., Gatti, D.D., Gallegati, M., Greenwald, B., & Stiglitz, J.E. (2012). Default cascades: When does risk diversification increase stability? Journal of Financial Stability, 8(3), 138-149. https://doi.org/10.1016/j.jfs.2012.01.002
  6. Bain, J.S. (1956). Barriers to new competition. (Vol. 329). Cambridge, MA: Harvard University Press.
  7. Berkovitch, E., Israel, R., & Zender, J.F. (1998). The design of bankruptcy law: A case for management bias in bankruptcy reorganizations. Journal of Financial and Quantitative Analysis, 33(4), 441-464. https://doi.org/10.2307/2331127
  8. Black, B.S. (1988). Bidder overpayment in takeovers. Stanford Law Review, 41, 597. https://doi.org/10.2307/1228881
  9. Chan, A.P., Scott, D., & Lam, E.W. (2002). Framework of success criteria for design/build projects. Journal of Management in Engineering, 18(3), 120-128. https://doi.org/10.1061/(ASCE)0742-597X(2002)18:3(120)
  10. Damgaard, J., Elkjaer, T., & Johannesen, N. (2019). Phantom investments. Finance & Development.
  11. Dohrenwend, B.P. (1959). Egoism, altruism, anomie, and fatalism: A conceptual analysis of Durkheim's types. American sociological review, 466-473.
  12. Finkelstein, S. & Hambrick, D. (1996). Strategic leadership. St. Paul: West Educational Publishing.
  13. Finkelstein, S., Hambrick, D., & Cannella, A.A. (2009). Strategic leadership: Theory and research on executives, top management teams, and boards. Strategic Management, Oxford University Press, USA.
  14. Goodpaster, K.E. (1991). Business ethics and stakeholder analysis. Business Ethics Quarterly, 53-73.
  15. Gray, H., Besosa, R., & Wimmer, L. (2015). Failed integrations are the seed bed for turnaround work: The pitfalls of corporate M&A strategy. The Journal of Private Equity, 18(3), 19-20. https://doi.org/10.3905/jpe.2015.18.3.019
  16. Hackney, W.P., & Benson, T.G. (1981). Shareholder liability for inadequate capital. University of Pittsburgh Law Review, 43, 837.
  17. Hongjiang, L.I.U. (2015). The innovation incentives of firms in M&A activity - based on the empirical study of listed firm M&A cases. Science and Technology Management Research, 2015(15), 4.
  18. Ireland, R.D. & Hitt, M.A. (1999). Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership. Academy of Management Perspectives, 13(1), 43-57. https://doi.org/10.5465/AME.1999.1567311
  19. Jagtiani, J.A., Lemieux, C.M., & Shin, G.H. (2000). Predicting inadequate capitalization: Early warning system for bank supervision. Chicago, IL: Federal Reserve Bank of Chicago.
  20. Khoo, J., Durand, R.B., & Rath, S. (2017). Leverage adjustment after mergers and acquisitions. Accounting & Finance, 57, 185-210. https://doi.org/10.1111/acfi.12148
  21. Klomp, J. (2014). Financial fragility and natural disasters: An empirical analysis. Journal of Financial Stability, 13, 180-192. https://doi.org/10.1016/j.jfs.2014.06.001
  22. Kotter, J.P. (2008). Corporate culture and performance. Simon and Schuster.
  23. Ku, S.W. (2014). Consulting for establishing management succession plan from military lessons. Journal of Management Consulting, 14(2), 359-377.
  24. Kucseber, L.Z. (2016). Before and after acquisition in Hungary: Focus on working capital management. Financial and Economic Review, 15(1), 70-90.
  25. Li, X. & Wang, S. (2016). Investigation of the Relationship between M&A and Corporate Hedge.
  26. Ling, F.Y.Y., Chan, S.L., Chong, E., & Ee, L.P. (2004). Predicting performance of design-build and design-bidbuild projects. Journal of Construction Engineering and Management, 130(1), 75-83. https://doi.org/10.1061/(ASCE)0733-9364(2004)130:1(75)
  27. Longstaff, F.A. (2009). Portfolio claustrophobia: Asset pricing in markets with illiquid assets. American Economic Review, 99(4), 1119-44. https://doi.org/10.1257/aer.99.4.1119
  28. Maupin, R.J. (1987). Financial and stock market variables as predictors of management buyouts. Strategic Management Journal, 8(4), 319-327. https://doi.org/10.1002/smj.4250080403
  29. McDowell, W.C., Harris, M.L., & Geho, P.R. (2016). Longevity in small business: The effect of maturity on strategic focus and business performance. Journal of Business Research, 69(5), 1904-1908. https://doi.org/10.1016/j.jbusres.2015.10.077
  30. Moeller, S.B., Schlingemann, F.P., & Stulz, R.M. (2004). Firm size and the gains from acquisitions. Journal of Financial Economics, 73(2), 201-228. https://doi.org/10.1016/j.jfineco.2003.07.002
  31. Olante, M.E. (2013). Overpaid acquisitions and goodwill impairment losses-Evidence from the US. Advances in Accounting, 29(2), 243-254. https://doi.org/10.1016/j.adiac.2013.09.010
  32. Osborne, S. (2002). Public-Private Partnerships: Theory and practice in international perspective. Routledge.
  33. Ostrom, E. (2009). A general framework for analyzing sustainability of social-ecological systems. Science, 325(5939), 419-422. https://doi.org/10.1126/science.1172133
  34. Pena-Mora, F. & Li, M. (2001). Dynamic planning and control methodology for design/build fast-track construction projects. Journal of Construction Engineering and Management, 127(1), 1-17. https://doi.org/10.1061/(ASCE)0733-9364(2001)127:1(1)
  35. Rehman, A.U., Wang, M., & Kabiraj, S. (2017). Working capital management in Chinese firms: An empirical investigation of determinants and adjustment towards a target level using dynamic panel data model. Afro-Asian Journal of Finance and Accounting, 7(1), 84-105.
  36. Ropke, W. (2014). A humane economy: the social framework of the free market. Open Road Media.
  37. Rothwell, W.J. (2010). Effective succession planning: Ensuring leadership continuity and building talent from within. Amacom.
  38. Sainani, S. & Chris F. (2017). How Do CFOs Matter? Evidence from M&A.
  39. Salvi, A., Petruzzella, F., & Giakoumelou, A. (2018). Green M&A deals and bidders' value creation: The role of sustainability in post-acquisition performance. International Business Research, 11(7), 96. https://doi.org/10.5539/ibr.v11n7p96
  40. Spence, A.M. (1981). The learning curve and competition. The Bell Journal of Economics, 49-70. https://doi.org/10.2307/3003508
  41. Sturkenboom, J., Van Der Wiele, T., & Brown, A. (2001). An action-oriented approach to quality management selfassessment in small and medium-sized enterprises. Total Quality Management, 12(2), 231-246. https://doi.org/10.1080/09544120120011451
  42. Tao, Q., Sun, W., Zhu, Y., & Zhang, T. (2017). Do firms have leverage targets? New evidence from mergers and acquisitions in China. The North American Journal of Economics and Finance, 40, 41-54. https://doi.org/10.1016/j.najef.2017.01.004
  43. Trueman, B. (1986). The relationship between the level of capital expenditures and firm value. Journal of Financial and Quantitative Analysis, 21(2), 115-129. https://doi.org/10.2307/2330732
  44. Vera, D. & Crossan, M. (2004). Strategic leadership and organizational learning. Academy of Management Review, 29(2), 222-240. https://doi.org/10.2307/20159030
  45. Volberda, H.W. (1996). Toward the flexible form: How to remain vital in hypercompetitive environments. Organization Science, 7(4), 359-374. https://doi.org/10.1287/orsc.7.4.359
  46. Weinstein, I. (1984). The future of the MIO in a price-competitive, price-driven market. Topics in Health Care Financing, 11(2), 84-92.
  47. Seal, W. (2001). Management accounting and the challenge of strategic focus. Management Accounting Research, 12(4), 487-506. https://doi.org/10.1006/mare.2001.0167
  48. Yelle, L.E. (1979). The learning curve: Historical review and comprehensive survey. Decision Sciences, 10(2), 302-328. https://doi.org/10.1111/j.1540-5915.1979.tb00026.x
  49. Zhao, K. (2017). Executive Compensation and Acquisition Decisions: Revisiting the Impact of CEO Equity Incentives on M&A.
  50. Zou, Q., Hu, Y., & Huang, J.S. (2015). Definition of complex Hurst and fractional analysis for stock market fluctuation. Industrial Engineering, Management Science and Applications, Springer, Berlin, Heidelberg, 215-227.