REASONS FOR INSOLVENCY AMONGST SMALL FIRMS - A REVIEW AND FRESH EVIDENCE

The growing and diverse literature on insolvency is comprehensively and critically reviewed. The limited portfolio that small firms represent, in particular as regards their managerial capabilities, is suggested as an added reason for the strong inverse correlation of probability of insolvency with firm size. The evidence from a hitherto largely untapped source of data, the reports of the British Official Receiver, is analysed using contingency tables. The most important reason for their failure given by the owners of insolvent firms is weaknesses in operational management, particularly in the adequacy of their capital. Marked inter-temporal and inter-regional differences are evident within the data.