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The economic costs associated with the failure of business are relatively large. The major parties that are affected severely because of business failure include the capital providers, government, employees and the management.[ CITATION Spa17 \l 1033 ] The term “corporate failure” refers to the discontinuation of the operations of a company that further leads to an inability to reap revenue or profit or pay the expenses of business research. In other words, corporate failure is a term that is used for the inability of the organizations, to conform to the strategic path that was developed for achieving the legal and financial objectives.[ CITATION Sal15 \l 1033 ].
The corporate failures occur usually because of the incompetence, poor management and the bad marketing strategies. There are a number of causes behind a corporate failure. This research is one of the efforts to explore the major causes behind the corporate failure. [ CITATION Art15 \l 1033 ].In this context, the major research question for this research is “what are the major factors that influence corporate failure?”
This research will deal with one of the important issues of accounting – corporate failure.
Organizations are now operating in a highly dynamic business environment and are exposed to a number of threats that can lead to failure of the organizations. The issue of corporate failure is of high interest for managers, accountants, general public and regulators. Corporate failures affect the whole organization including all its internal and external stakeholders such as customers, employees, shareholders, government etc.[ CITATION Kus16 \l 1033 ] This is because corporate failures result in huge financial losses. The financial crisis hits the organization that is operating in a wider economy, and the number of organizations that are filing for the insolvency is also increasing. The contemporary issues of corporate failure are important for the organization’s stakeholders and the researchers who are exploring the issues of accounting. This is because it is one of the complex issues that leads to closure and collapse of an organization. [ CITATION Lak12 \l 1033 ]
The topic that is being addressed in this research which is corporate failure is subjected to research and discussion by the accountants, equity shareholders, bankers, creditors, management experts and the marketing experts. In addition, this research topic has also attracted the attention of international and local commentators, as the corporate failures have the potential to destabilize the economic system, by increasing the levels of unemployment, poverty, increase in crime rates and reduced tax earnings. There is however, a lack of studies that have been conducted in Australia regarding the impact, causes and factors influencing the corporate failure. This research is one of the efforts to contribute in the existing theory of corporate failures or extend the research on corporate failures.
Lakshana & Wijekoon, (2012) conducted a study on determining the influence of corporate governance characteristics on the corporate failures. Some of the major characteristics of corporate governance that are related negatively with the corporate failure include the size of the board, directors, audit committee and the board members. On the other hand, the findings of study indicate that duality of the CEO is positively associated with likelihood of corporate failure.[ CITATION Lak12 \l 1033 ]
ALLEN, IMBIEROWICZ, & RAUCH, (2016) also conducted a study to determine the role of corpoarte governance in the financial crisis and the corpoarte failures. The authors indicated that the ownership structure is one of the major elements of corporate governance that have an infleunce on the corporate failures.[ CITATION ALL16 \l 1033 ]. In addition, the author also indicates that the non – CEO managers also influence the corporate failures, as they take high risks that resuls in the failure of the organization.[ CITATION ALL16 \l 1033 ]
The stakeholder theory is a theory that that explains the relationship between stakeholders and corporates. The staleholders can be defined as the individuals or the gropus that have an influence on the achievement of purposes of the firms.[ CITATION Lon14 \l 1033 ]. The stakeholders are the ones who contribute in the overall profit and benefits of an organization . The stakeholder’s theory is based on the approach of deontology. This particular approach focuses on the rights of the individuals. According to the theory of stakeholders, the success of an organization is dependent on the satisfaction level of the stakeholders. [ CITATION Kus16 \l 1033 ].
The agency theory on the other hand is an economic or a management theory that focuses on explaining the self interests and relationships in the business organizations. [ CITATION Kar13 \l 1033 ].The agency theory describes the relationship between the agents/principal and the delegation of control. The agency theory explains that how the relationship can be best organized in a way in which principal determines the work and the agent makes decision or performs on behalf of the principal. [ CITATION Bra17 \l 1033 ].
Apart from the corporate governance, another variable that is being studied in this research includes leadership. [ CITATION Uma13 \l 1033 ] in their study have determined the role and importance of leadership in the corporate failures. The findings of the authors indicate that leadership is one of the central elements that influences the failure or success of organziations. [ CITATION Uma13 \l 1033 ].
Heracleous& Werres (2015) also conducted a study on the relationship between corporate misalingment and the corporate failures. The corporate failures occur because of the development of patterns of misalingment. The overall process of misalingment starts with the dysfunctional leadership as well as the ineffective corporate governance. The strategic misalingment spread throughout the organization that further increases the gap between the organizational startegy and competitive environment that further leads to corporate failure. [ CITATION Loi15 \l 1033 ].
The above literature review indicates that the studies are consistent in terms of the direct impact of corporate governance and leadership on the corporate law failures.
The hypotheses developed on the basis of the literature review presented above are given below:
1. H1: The corporate governance has a direct influence on the corporate failures
2. H2: The leadership in the organization has a direct impact on corporate failures.
1. ALLEN, IMBIEROWICZ, B. B., & RAUCH, C. (2016). The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis. Journal of Money, Credit and Banking (JMCB) i , 729-770.
2. Allen, M. W., & Craig, C. A. (2016). Rethinking corporate social responsibility in the age of climate change: a communication perspective. International Journal of Corporate Social Responsibility , 1 (1), 1-12.
3. Arthur, K. O. (2015). Predicting corporate failure: a systematic literature review of methodological issues. International Journal of Law and Management , 57 (5), 461 - 485.
4. Heracleous, L., & Werres, K. (2015). On the Road to Disaster: Strategic Misalignments and Corporate Failure. Long Range Planning .
5. Kumalasari, K. P., & Sudarma, M. (2013). A CRITICAL PERSPECTIVE TOWARDS AGENCY THEORY. Jurnal Akuntansi Multiparadigma,, 269-285.
6. Kusumaningtias, Ludigbo, & Irianto. (2016). Rethibking of corpoarte governance . Procedia - Social Work and Behavioral Sciences , 455-464.
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10. Salman, K., Fuchs, M., & Zampatti, D. (2015). ASSESSING RISK FACTORS OF BUSINESS FAILURE IN THE MANUFACTURING SECTOR: A COUNT DATA APPROACH FROM SWEDEN. International Journal of Economics, Commerce and Management , 3 (9).
11. Spaliara, & Tsoukas. (2017). Corporate failures and the denomination of corporate bonds: Evidence from emerging Asian economies over two financial crises. . Journal of International Financial Markets, Institutions and Money, , 84-97.
12. Umaru, U., Audu, A. R., & Paul, M. Y. (2013). Corporate Leadership Failure and Its Implications for the consolidation of Corporate Governance and Accountability in Nigeria. IOSR Journal Of Humanities And Social Science , 16 (1), 53-58.