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This paper has two purposes. First, it evaluates the extent to which different failure processes are present in failed UK SMEs, by considering non-financial metrics including director characteristics, in addition to the financial ones. Second, it analyses the determinants of the transition to failure in relation to the different failure processes that have been identified.

The study is based on a sample of failed UK SMEs. The data covers financial ratios, board characteristics, the macroeconomic environment, sectoral details and regional information. First, failure processes are identified using a combination of factor analysis and cluster analysis. Second, the determinants of firms' transition to failure for the whole sample and in the individual failure clusters are analysed using panel data analysis.

Four different firm failure processes were identified. Director characteristics differ between firm failure processes. We find evidence that director characteristics including director age and board gender structure, affect the transition to failure of UK SMEs. We also find that different factors affect the different failure processes.

The paper is the first to analyse the reasons for failure of UK SMEs in the firm failure process context by considering non-financial metrics such as the characteristics of the firms' directors. In addition the paper also identifies a number of different determinants that affect the various failure processes. This finding is important because it suggests that policies designed to reduce the incidence of firm failure should take account of the different failure processes.

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Why do firms fail? The reasons behind given for corporate failure vary widely. During the financial crisis, firms failed because of the financial crisis, or during the Coronavirus pandemic firms failed due to the Coronavirus pandemic. When there are global market problems, those problems tend to get the blame for most things, including firms going under. But other reasons are sometimes given as well – that a firm is carrying too much debt to be sustainable, or a hypercompetitive market, or there are unsurmountable problems in the supply chain. Very often, these reasons are not scrutinized very closely as everyone moves on to invest in another company or try and find work elsewhere.

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