Causes of decline within the shadow of insolvency - Assessment of non-financial information for companies in financial distress

(Working title)

Anthon Verweij

Sooner or later all companies run into some form of financial distress. Even the most successful companies can be faced with the unpleasant reality of financial distress. Predicting and therefore preventing bankruptcy is needed to contain the collateral damage which arises when formal bankruptcy proceedings are started. The last financial crisis however showed the relative value of financial information with respect to financial distress at companies. Large-scale bankruptcies like for example Lehman Brothers, Enron and MCI Worldcom still seem to surprise stakeholders when such companies enter into financial distress or even into formal proceedings. 

An initiative of several European professional accountancy bodies (Common Content) subscribes this. Common Content identifies the qualification of expertise required to provide the services which clients and employers, as well as the public, demand of professional “entry level” accountants. The Common Content project has also formulated learning objectives for professional accountants in assisting business in difficulty like for example detecting financial distress, determining risks, assessing the possibility of insolvency and formulating strategic possibilities for companies likely to face financial distress or companies who have already entered into financial distress. All of the above mentioned learning objectives require to a certain extent assessment of non-financial information. 

My PhD research therefore focuses on the assessment of non-financial information related to companies in financial distress and it’s value in assisting business in difficulty for involved stakeholders like professional accountants and lawyers. The main hypothesis of this PhD study is that non-fiancial information plays a crucial part in predicting and dealing with financial distress. The need for and value of assessment of non-financial information has been underrated but more importantly involved stakeholders like professional accountants and lawyers are not trained at nor familiar with assessing non-financial information in light of financial distress.