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SALISBURY, MD---Dr. Richard Hoffman, professor of management in ºÚÁÏÍø’s Franklin P. Perdue School of Business, recently published two articles as the result of research conducted as a Fulbright Scholar in Estonia.

“Film Bankruptcy Probability and Causes: An Integrated Study” was published in the October 2014 edition of the International Journal of Business and Management. “Firm Failure Causes: A Population Level Study” appeared in the journal Problems and Perspectives in Management earlier this year. Both were co-authored with Oliver Lukason, lecturer in finance at the University of Tartu, Estonia.

As a Fulbright Scholar in 2013, Hoffman worked with Lukason to investigate the cause of bankruptcies as the country privatized state-owned firms during its transition to a market economy. Lukason obtained access to the largest national database of more than 1,200 bankruptcies over a seven-year period, representing approximately 70 percent of the business failures in Estonia.

In the study published in 2014, the researchers examined the impact of the number and types of causes of business failure on failure risk among manufacturing firms in Estonia. Their results revealed that multiple failure causes led to more rapid decline than single causes of failure, but the type of cause had little impact on failure risk.

In the study published in 2015, Hoffman and Lukason examined two broad types of causes of business failure, derived from being either internal (management) or external (competition, economy, regulation, etc.) to the firm.

They found 43 percent of the bankruptcies were caused by both internal and external forces combined. Some 31 percent were the result of internal management problems alone, while 26 percent were due only to external factors.

Their results also revealed that larger firms did not tend to fail due to internal causes alone, but rather to either external causes alone or both types of causes combined. This supported the general notion that larger firms have the talent and resources necessary to succeed compared to smaller firms. In addition, the researchers found that older or more experienced firms tended to fail primarily due to causes outside management’s control. This suggested that, among older firms, there was an increased liability of obsolescence as new more agile firms enter the industry.

Some of the implications of these studies included that stakeholders such as creditors who apply bankruptcy models to predict business failures should consider both the number and type of potential causes of failure in their predictions. Different factors need to be monitored based on the size and age of the firm, Hoffman said. Managers of larger and older firms need to be vigilant of their external environments as those factors are the primary causes for their failure, while managers of newer firms should focus more on internal managerial control as a way to avoid failure risk, he added.

The research was supported by an Estonian Research Council Grant awarded to Lukason and a Fulbright Grant awarded to Hoffman.

For more information call 410-543-6030 or visit the SU website at www.salisbury.edu.