Oliver Lukason

Do firm failure processes differ across countries: evidence from Finland and Estonia

This study considers the novel topic of comparing firm failure processes between different countries. For seventy bankrupt Finnish firms corresponding pairs are found among Estonian bankrupt firms based on industry, size and time of bankruptcy. Despite the similarity of firms from two countries, the analysis shows remarkable differences in both pre-failure financial data and reasons for failure. Based only on financial data, five failure processes are detected for Finnish and six for Estonian firms. Established failure processes associate with different failure reasons. The study contributes to literature by showing that for similar companies failure processes can differ across countries. In practice, the established information about different failure processes can be applied when building or using bankruptcy prediction models.

Failure processes of young manufacturing micro firms in Europe

Purpose The purpose of this paper is to find out which different failure processes exist among the young manufacturing micro firms, and whether the representation of those processes differs first, in European countries, and second, among exporting and non-exporting firms. Design/methodology/approach The study is based on financial data of 1,216 manufacturing micro firms from European countries. Failure processes have been detected with a two stage-method: by extracting latent dimensions from financial variables with factor analysis, and then, by clustering the established factor scores. Findings With firms’ age, the number of different failure processes reduces from four to two. Strong evidence was found about the dominance of different failure processes in different countries for most firm age groups. Failure processes are not strongly associated with (non-)exporting. Originality/value This paper is the first one determining young manufacturing micro firms’ failure processes and comparing the representation of those processes in different firm subsets, either based on their country of origin or (non-)exporting behavior. Moreover, previous studies have not encompassed specific sectors, young or very small firms.

Failure processes of exporting firms: evidence from France

Purpose This paper aims to detect failure processes of French exporting firms and study their contingency with export processes. Design/methodology/approach The sample consisted of 131 bankrupted exporting firms from Bureau van Dijk’s Amadeus database. Factor and cluster analyses of six financial variables from Laitinen’s (1991) model were used to detect failure processes. Export processes were detected with cluster analysis of export share in total turnover. Contingency between failure and export processes was studied with a statistical test. Findings Three different failure processes existed for exporting firms. Two of these processes, which accounted for 79 per cent of firms, were classified as gradual failure: a step-by-step worsening of financial performance before the bankruptcy was declared. One was a symbiotic process reflecting varying pre-bankruptcy behaviours of different financial variables. Two different types of exporters existed. Most firms (77 per cent) were occasional exporters, while 23 per cent were constantly and more strongly involved in international markets before their bankruptcy was declared. There was no contingency between failure and export processes. Originality/value This study is the first one to detect failure processes specifically for exporting firms based on financial variables. In line with previous literature about non-exporting firms, gradual failure processes were most characteristic to exporting firms. The study shows that different types of exporters were not characterized by any unique behaviour of financial variables before their bankruptcy was declared.

Interconnecting exporter types with export growth and decline patterns: Evidence from matched mature Estonian and Spanish firms

Purpose This paper aims to find out if different exporter types dominate among matched mature Spanish and Estonian firms and whether these types are associated with specific export growth/decline patterns. Design/methodology/approach This study is based on firm-level data from the Estonian Business Register’s database of annual financial reports and SEPI Foundation’s survey on Spanish firms’ business strategies. From both countries, 242 firms were included and the period 2009-2013 was chosen. Findings Committed exporters (with 75 per cent or higher export shares) dominated in Estonia and experimental exporters (with export shares mostly below 10 per cent) in Spain. While in Estonia, the most frequent export growth/decline pattern encompassed four consecutive growth years, in Spain, it had two consecutive growth years and then two decline years. Spanish firms’ export growth/decline patterns were more random: 12 patterns of 16 fell within the range of a random walk assumption, while in Estonia, only 5 patterns were within the range. Contingency existed between exporter types and export growth/decline patterns only for the whole sample. Originality/value This paper studies if committed/aggressive/active exporters experience more export fluctuations than passive/experimental exporters, and how random export growth/decline patterns are.

Interconnecting financial performance and internationalization: a case of a rare metal producer

The paper aims to outline the causes that affected a rare earth metal producer Molycorp Silmets internationalization based on case study evidence. Moreover, based on statistical analysis, it aims to study how its internationalization and financial performance were interconnected. It concludes that 1) its export fluctuations mostly resulted from external factors and that despite such fluctuations, the firms financial health was mostly good, 2) high concentration on a single target market can lower profitability, 3) fluctuations in target market shares can increase or decrease a firms profitability, but they are not interconnected with its bankruptcy probability.

Why Reorganization of Firms Fails: Evidence from Estonia

Although most countries have firm reorganization option in legislation (either as a separate law or part of insolvency code), the practice of successful reorganizations has remained modest. Reorganization law was introduced in Estonia in late 2008, but only a few firms have been successfully reorganized since. Derived from previous the article studies, what are the reasons for firm reorganization failure? From a legal viewpoint, the main causes are found to be that firms under reorganization do not submit reorganization plans to court and the preconditions for reorganization lapse. The financial ratios for successful and unsuccessful reorganizations are not significantly different according to independent samples median test. Unsuccessfully reorganized firms perform worse than successful ones in the year before reorganization year, but the opposite phenomenon occurs two and three years before reorganization year.

The System of Firm Support Grants in Estonia: Whom Does It Favor?

After joining the European Union, remarkable support has been provided to Estonian firms through government grants financed from EU funds, but so far it has not been systematically studied, which firms can get support from them. Current study analyzes all grants for firms financed from EU funds in Estonia in the period of 2007-2013. The paper outlines most supported firms based on activities financed and restrictions set on firms and application. The results indicate that some limitations make only a narrow range of firms eligible to get financial support. The grant measures in different implementing units providing grants vary a lot. Also, grants directed to fixed asset investments have more restrictions when compared with those directed to reimbursement of costs.

Economic Benefit of Maximum Truck Weight Regulation Change for Estonian Forest Sector

Current paper is focused on analyzing the economic benefit of increasing maximum allowed truck weight for Estonian forest sector. It is producing economic benefits to the firms of forest sector in two broad areas. The change in truck weight limit regulation is causing the reduction of transportation costs for forest sector firms.Increase of the truck weight limit from current 44 up to 60 tonnes is going to reduce the share of transportation costs in roundwood material prices from 17.7% to 14.2%.Secondly, the growth of demand for roundwood as the result of decreasing transportation costs was determined. Using own and cross elasticities between road and rail transportation, the apparent domestic consumption is expected to grow in the range from 0.7-4.6 % depending on the change of regulation from 44 to 60 tonnes, whereas in the most probable situation (change from 52 to 60 tonnes) the growth in apparent domestic consumption is 0.3-1.1%.