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Encyclopedia of Finance pp 477–490Cite as

Corporate failure: Definitions, methods, and failure prediction models

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Abstract

The exposure of a number of serious financial frauds in high-performing listed companies during the past couple of years has motivated investors to move their funds to more reputable accounting firms and investment institutions. Clearly, bankruptcy, or corporate failure or insolvency, resulting in huge losses has made investors wary of the lack of transparency and the increased risk of financial loss. This article provides definitions of terms related to bankruptcy and describes common models of bankruptcy prediction that may allay the fears of investors and reduce uncertainty. In particular, it will show that a firm filing for corporate insolvency does not necessarily mean a failure to pay off its financial obligations when they mature. An appropriate risk-monitoring system, based on well-developed failure prediction models, is crucial to several parties in the investment community to ensure a sound financial future for clients and firms alike.

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Acknowledgements

We would like to thank many friends in University of London (U.K.) and National Chi Nan University (Taiwan) for valuable comments. We also want to thank our research assistant Chiu-mei Huang for preparing the manuscript and proofreading several drafts of the manuscript. Last, but not least, special thanks go to the Executive Editorial Board of the Encylopedia in Finance in Springer, who expertly managed the development process and superbly turned our final manuscript into a finished product.

Author information

Authors and Affiliations

  1. University of London, London, UK

    Jenifer Piesse

  2. University of Stellenbosch, Stellenbosch, South Africa

    Jenifer Piesse

  3. National Chiao Tung University, Hsinchu, Taiwan

    Cheng-Few Lee

  4. Rutgers University, New Brunswick/Piscataway, USA

    Cheng-Few Lee

  5. National Chi-Nan University, Nantou Hsien, Taiwan

    Hsien-Chang Kuo & Lin Lin

  6. Takming College, Taipei, Taiwan

    Hsien-Chang Kuo

Authors
  1. Jenifer Piesse
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  2. Cheng-Few Lee
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  3. Hsien-Chang Kuo
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  4. Lin Lin
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Editor information

Editors and Affiliations

  1. Rutgers University, New Brunswick/Piscataway, USA

    Cheng-Few Lee

  2. San Francisco State University, San Francisco, USA

    Alice C. Lee

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Piesse, J., Lee, CF., Kuo, HC., Lin, L. (2006). Corporate failure: Definitions, methods, and failure prediction models. In: Lee, CF., Lee, A.C. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-26336-6_48

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  • DOI: https://doi.org/10.1007/978-0-387-26336-6_48

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-0-387-26284-0

  • Online ISBN: 978-0-387-26336-6

  • eBook Packages: Business and Economics

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