Hubert Ooghe

Failure processes and causes of company bankruptcy: a typology

This paper describes a typology of failure processes within companies. Based on case studies and considering companies’ ages and management characteristics, we discovered four types of failure processes. The first failure process describes the deterioration of unsuccessful start-up companies leaded by a management with a serious deficiency in managerial and industry- related experience. The second process reveals the collapse after a failing growth of ambitious early- stage companies. Those companies have, after a failed investment, insufficient financial means to adjust their way of doing business to the changes in the environment in order to prevent bankruptcy. Third, we describe the failure process of dazzled established companies, leaded by an overconfident management without a realistic view on the company’s financial situation. Lastly, the bankruptcy of apathetic companies, describes the gradual deterioration of apathetic established companies where management had lost touch with the changing environment. We also found that there is a great difference in the presence and importance of specific causes of bankruptcy between the distinctive failure processes . Errors made by management, errors in corporate policy and changes in the general and immediate environments differ considerably between each of the four failure processes.

Growth patterns of the European venture capital industry

Abstract Although the European venture capital industry has become nearly as important as its American counterpart, little research has been done to describe its nature and importance. This study gives in the first place an overview of the importance of the venture capital industry in the major European countries. Thereafter, we look for funding and investment patterns in the different European countries. We hypothesize that there is a difference between countries in which the venture capital industry is just emerging, and those where the venture capital industry is since long established. The data are mainly, but not solely, taken from the yearly statistics of the European Venture Capital Association (EVCA) and cover the period 1984–1989. The characteristics we look at are: (1) the sources of the funds flowing into the industry, broken down with respect to investor type and geographical location of the investor; and (2) the investments, broken down with respect to investment stage (using the EVCA definitions of the different stages), geographical location, degree of syndication, and industrial sector of the investee companies. In Europe as a whole, the most important group of investors are the banks (28%), the pension funds (17%), and the insurance companies (12%). Banks dominate the Swiss industry (48%); corporate investors dominate the German, Swedish, and Portuguese industries, whereas these are nearly completely absent in Denmark (2%), Ireland (4%), and the United Kingdom (5%). Eighty percent of all venture capital funds are raised domestically, 7% in another European country, and the remaining 13% in a non-European country. Almost half of the European investments (44%) are made in the expansion stage; management buy-outs (MBOs) account for another 36%. Only 14% is invested in seed or start-up companies, much less than the 30% in the U.S. Half of the venture capital investments in the United Kingdom are buy-outs. The highest start-up investment activity takes place in Austria and Spain. On average, more than half (54%) of the invested amount in Europe is syndicated, but only 6% internationally, while 10% is invested internationally. We also search for similarities and dissimilarities in the characteristics of the sources of funds and of the investments. The hypothesis is that a growth pattern can be distinguished, determining the maturity of the venture capital industry in a particular country. The characteristics that we think would discriminate most among the different industry stages are the importance of government agencies, pension funds, and insurance companies (sources of funds); of start-up, later stages, or MBO investments; and the percentage of international and syndicated investments. Cluster analyses show that there is a growth pattern, but it is less clear than expected. Characteristics of mature industries are a bigger size, relative to the gross national product of the country, the presence of pension funds and insurance companies as investors in the industry, the syndication of the deals, and the absence of the government as an investor, in the 1980s, investments in management buy-outs are mainly done by the mature industries. No pattern can be distinguished for the investments in early or later stages. The major implication from this study is the fact that the European venture capital industry cannot be approached as a single, undifferentiated industry. Each country has its own structures, institutions, and policies, which make the venture capital industries in the different countries have unique characteristics. Moreover, the European venture capital industry has different characteristics than the American industry; this has to be taken into account when comparing both industries.

The Anglo‐American versus the Continental European corporate governance model: empirical evidence of board composition in Belgium

Compares two corporate governance models: the Anglo‐American and the Continental European model. These corporate governance models differ strongly, and the differences are mainly due to differences in the business context. The problems arising from separation of ownership from control will thus have to be solved through different mechanisms. One important mechanism is the board of directors. The board composition of 122 companies has been analyzed in a Belgian empirical study. From the tests, finds a significant positive relationship between the number of directors in the board and a range of other factors. Shareholder structure does not seem to have an effect on the size of the board. A second variable concerning the composition of the board, is the percentage of external directors. Finds that the number of external directors differs significantly between companies with a different nationality and between companies that are listed or not. Size, shareholder structure and industry were not related to the percentage of external directors in a company.

Profile of multiple versus single acquirers and their targets: a research note

Few studies have addressed the pre-take-over financial characteristics of multiple versus single acquirers and their targets. Therefore this study investigates whether multiple acquirers, with some experience in acquiring companies, might acquire firms with different (better) financial characteristics than single acquirers. Results confirm this hypothesis in multiple ways. It seems that multiple acquirers look for complementary firms in terms of sales and growth. Multiple acquirers specifically want to acquire companies with a high sales generating ability in order to improve their own sales generating ability.

Semi-annual earnings announcements and market reaction: some recent findings for a small capital market

This paper tries, first, to document the returns response of stocks to unexpected semi-annual earnings after the announcement of these earnings in a small capital market, i.e. the Brussels Stock Exchange (hereafter BSE), and second, to assess the explanations and empirical problems found in the literature concerning the post-earnings announcement drift. The motivation for this research is the introduction of new Belgian legislation initiating the reporting of the semi-annual results of the firms listed on the BSE (Royal Decree of 18 September 1990). We also attempt to avoid potential empirical problems of earlier Belgian studies and use some techniques more comparable with those of recent American studies. The results show that systematic post-earnings announcement drift is found neither for the market mode, nor for the size-adjusted returns model. The results also suggest that the market model is not a descriptively valid pricing model for the BSE or that its parameters are misspecified. When we distinguish between large and small firms, we discover for the size-adjusted returns model a CAR pattern for the large firms consistent with the results reported in the literature. However, the small firms show a puzzling pattern.

The performance of foreign and national take‐overs in Belgium

Measures the influence a foreign take‐over has on the performance of a firm. More precisely, compares the performance of Belgian companies that have been taken over by Belgians with the performance of Belgian companies that have been taken over by foreigners. Concludes that foreign takeovers have no negative influence on the performance of companies. Moreover, it is clear that foreign companies take over better performing companies than their Belgian counterparts.

Financial Distress and Firm Exit: Determinants of Involuntary Exits, Voluntary Liquidations and Restructuring Exits

This paper provides new insights on the determinants of firm exit after distress. Using nested logit models and a sample of 6118 distress-related exits from Belgium, we analyze the impacts of available and potential slack and the relative efficiency of voluntary liquidation, compared to acquisition and merger, on the type of exit. It appears essential to examine the type of exit outcome as a two-stage process. The first stage considers the fundamental distinction between voluntary and involuntary exit, the latter being the least favorable and most avoided exit strategy. In this situation, high levels of available and potential slack resources, as reflected by large cash holdings, strong group relations and low current leverage, increase the probability of voluntary exit. High slack allows distressed firms to avoid bankruptcy and decide on their exit process. In the second stage, and provided that exit is voluntary, voluntary liquidation is compared to restructuring exit (acquisition, merger or split). In this stage, a higher relative efficiency of voluntary liquidation compared to a restructuring exit, as indicated by absence of group relations, small firm size, high secured debt level and large cash holdings, increase the likelihood of voluntary liquidation and reduce the probability of a restructuring exit.

Financial management practices in China: a case study approach to companies in the Shanghai region

The objective of this study is to describe financial management practices in China by means of a qualitative, case study approach. A total of 16 firms in the Shanghai region were interviewed. The research results refer to: investment in fixed assets; financing methods and sources; dividend policy; working capital management; internationalization; and financial organization and financial departments.

A note on performance measures for business failure prediction models

This note briefly describes three performance measures that can be used in business failure prediction models: the unweighted error rate (UER), D-max and the Gini-coefficient. The use of these measures (and the mathematical relationship between them) is illustrated with numerical examples. We hope that this note may help the reader to better understand (and possibly use) these classification criteria.