International Journal of Nonlinear Analysis and Applications
An explanation of causes of business failure based on audit report disclosure, audit variables, and corporate governance mechanisms from the perspective of senior managers in companies listed on the Tehran Stock Exchange
Document Type : Research Paper
Authors
Department of Accounting, Sirjan Branch, Islamic Azad University, Sirjan, Iran.
Abstract
The present research aimed to investigate the explanatory roles of audit report disclosure, audit variables, and corporate governance mechanisms in explaining the causes of business failure in companies listed on the Tehran Stock Exchange from the perspective of company managers. To this end, 249 senior managers from companies listed on the stock exchange were selected using convenience and purposive sampling methods, and a researcher-made questionnaire was emailed to them. The present research had a survey-causal type. The data collection tool included a researcher-made questionnaire that evaluated the roles of three main research variables in explaining the causes of business failure. The validity and reliability of the research tools were confirmed. Analysis of data was performed in SPSS and LISREL (through confirmatory factor analysis). The audit report disclosure about negative working capital (among the audit report disclosure variables) with a coefficient of 6.68, auditor tenure (among the audit variables) with a mean coefficient of 6.05, ownership concentration (corporate governance mechanisms) with a mean of 3.86 had the highest importance and impact in explaining the causes of business failure. In general, audit variables with a coefficient of 2.29 had the highest importance and impact in explaining the causes of business failure. The results of structural equations indicated that the business failure model was valid based on three main research variables. Furthermore, all three variables played significant roles in explaining the causes of business failure.
Keywords
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[22] M. Hern´andez-Tinoco and N. Wilson, Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables, Int. Rev. Financ. Anal. 30 (2013), 394–419.
[23] S. A. Hillegeist, E. K. Keating, D. P. Cram and K. G. Lundstedt, Assessing the probability of bankruptcy, Rev. Account. Stud. 9 (2004), no. 1, 5–34.
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[26] K. Keasey and R. Watson, Non-financial symptoms and the prediction of small company failure: A test of Argenti’s hypotheses, J. Bus. Finance Account. 14 (1987), no. 3, 335-354.
[27] M. Kim, M. Kim and R.D. McNiel, Predicting survival prospect of corporate restructuring in Korea, Appl. Econ. Lett. 15 (2008), no. 15, 1187-1190.
[28] W.R. Knechel and A. Vanstraelen, The relationship between auditor tenure and audit quality implied by going concern opinions, Audit. 26 (2007), no. 1, 113–131.
[29] T. Korol, Early warning models against bankruptcy risk for Central European and Latin American enterprises, Econ. Model. 31 (2013), 22–30.
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[37] A.M.I. Lakshan and W. Wijekoon, Corporate governance and corporate failure, Procedia Economics and Finance 2 (2012), 191–198.
[38] C.S. Lennox, The accuracy and incremental information content of audit reports in predicting bankruptcy, J. Bus. Finance Account. 26 (1999), no. 5, 757–.
[39] T. Lensberg, A. Eilifsen and T.E. McKee, Bankruptcy theory development and classification via genetic programming, Eur. J. Oper. Res. 169 (2006), no. 2, 677–697.
[40] F. Lizarraga-Dallo, Bankruptcy prediction models: Does Altman’s 1968 model work among Spanish firms?, Spanish Account. J. 1 (1998), no. 1, 137–164.
[41] O. Lukason, Characteristics of firm failure processes in an international context, Ph.D. dissertationEstonia, Tartu University, 2016.
[42] O. Lukason and R.C. Hoffman, Firm bankruptcy probability and causes: An integrated study, Int. J. Bus. Manag. 9 (2014), no. 11, 80–91.
[43] R.N. Lussier, A nonfinancial business success versus failure prediction model for young firms, Journal of Small Business Management 33 (1995), no. 1, 8–20.
[44] T. E. McKee, Rough sets bankruptcy prediction models versus auditor signaling rates, J. Forecast. 22 (2003), no. 8, 569–586.
[45] K. Mellahi and A. Wilkinson, Organizational failure: A critique of recent research and a proposed integrative framework, Int. J. Manag. Rev. 5 (2004), no. 1, 21–41.
[46] N. Mu˜noz-Izquierdo, M.M. Camacho-Mi˜nano and D. Pascual-Ezama, The content of the audit report in the year prior to the bankruptcy filing, Empirical evidence from Spain, Spanish J. Finance Account. 46 (2017), no. 1, 92–126.
[47] M. Nazemi Ardakani and V. Zare Mehrjerdi, Prediction of firms bankruptcy based on industry characteristics, J. Account. Soc. Interests 7 (2017), no. 2, 122–139.
[48] J.A. Ohlson, Financial ratios and the probabilistic prediction of bankruptcy, J. Account. Res. 18 (1980), no. 1, 109–131.
[49] H. Ooghe and S. de Prijcker, Failure processes and causes of company bankruptcy: A typology, Manag. Decision 46 (2008), no. 2, 223–242.
[50] M.A. Pedrosa and F. L´opez-Corrales, Auditors’ response to the global financial crisis: Evidence from Spanish non-listed companies, Spanish J. Finance Account. 47 (2018), no. 3, 400–431.
[51] D.A. Shepherd and H. Patzelt, Trailblazing in Entrepreneurship, Palgrave Macmillan, 2017.
[52] D. Ucbasaran, D.A. Shepherd, A. Lockett and S.J. Lyon, Life after business failure: the process and consequences of business failure for entrepreneurs, J. Manag. 39 (2013), 163–202.
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Volume 14, Issue 4
April 2023Pages 87-100
- Receive Date: 10 November 2021
- Revise Date: 24 January 2022
- Accept Date: 02 February 2022