Impact of Corporate Failure

Discuss the impact of corporate failure on different stakeholders


As financial crisis hits businesses in the wider economy, there is a significant increase in the number of companies filing for insolvency. Corporate failure which leads to the collapse and closure of companies can have serious consequences for a number of different groups, such as:

 Owners of companies which fail may lose their livelihood and even their homes and assets where these have been used as security for money invested in setting up business,

 Investors in companies may lose substantial sums of money.

 Creditors may not be paid for products and services. This can lead to difficulties for those companies as well.

 Employees lose their jobs.

 Entire communities can be adversely affected by the closure of important employers in the area.

The potential consequences of failure mean that concerned parties want to improve their success in identifying failing companies, in order to take steps to prevent the failure or to liquidate their investment before losing substantial sums of money. This has led to attempts to develop models which would enable the identification of companies likely to fail.


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