PurposeTo identify predictors of corporate financial distress, using the discriminant and logit models, in an emerging market over a period of economic turbulence and to reveal the comparative predictive and classification accuracies of the models in this different environmental setting.Design/methodology/approachThe research relies on a sample of 27 failed and 27 non‐failed manufacturing firms listed in the Istanbul Stock Exchange over the 1996‐2003 period, which includes a period of high economic growth (1996‐1999) followed by an economic crisis period (2000‐2002). The two well‐known methods, discriminant analysis and logit, are compared on the basis of a better overall fit and a higher percentage of correct classification under changing economic conditions. Furthermore, this research attempts to reveal the changes, if any, in the bankruptcy predictors, from those found in the earlier studies that rested on the data from the developed markets.FindingsThe logistic regression model is found to have higher classification power and predictive accuracy, over the four years prior to bankruptcy, than the discriminant model. In this research, the discriminant and logit models identify the same number of significant predictors out of the total variables analyzed, and six of these are common in both. EBITDA/total assets is the most important predictor of financial distress in both models. The logit model identifies operating profit margin and the proportion of trade credit within total claims ratios as the second and third most important predictors, respectively.Originality/valueThis paper reveals the accuracy with which the discriminant and logit models work in an emerging market over a period when firms face high uncertainty and turbulence. This study may be extended to other emerging markets to eliminate the limitation of the small sample size in this study and to further validate the use of these models in the developing countries. This can serve to make the methods important decision tools for managers and investors in these volatile markets.

Documents evidence on the interdependence between the mechanisms used to control the agency costs in Turkish manufacturing firms where the external control devices are restricted and most of the firms have concentrated ownership. The ownership concentration, board size and composition, managerial shareholdings, institutional shareholdings, and family shareholdings are the selected devices. Evidence reveals that the proportion of insiders on the board is positively related to the percentage of family shareholdings and negatively related to the percentage of foreign institutional shareholdings and ownership concentration. Board size shows a significant negative relation with all the control mechanisms except the debt ratio. The finding that the managerially controlled firms have lower debt ratio than the institutionally controlled firms and the family controlled firms supports the entrenchment hypothesis. The capital market seems to complement the institutional shareholdings, family shareholdings, and ownership concentration in monitoring the CEOs.

This paper investigates whether the internal capital markets of business groups mitigate the financial constraints of affiliated firms,and affect their financing policies.It aims to extend the evidence on internal capital markets to emerging countries where financing constraints are prevalent, and adds to the literature on trade credit by revealing that the distressed group-affiliated firms rely less on trade credit than their non-affiliated counterparts despite the positive relation between trade credit and distress. Group firms that have high investments in prior periods use less trade credit in the subsequent periods than non-affiliated firms. The study rests on panel data regressions covering 3906 firms from six emerging countries for the 2006-2012 period. The findings indicate that the Q-sensitivity of the investments of affiliated firms is lower than that of their unaffiliated counterparts in all countries and that the investment cash flow sensitivity of affiliates is lower in five countries, strongly indicating that group-affiliated firms are financially less constrained. The distressed group firms use significantly lower leverage than distressed unaffiliated firms despite the positive relation between distress and leverage. Group firms in high-Q industries invest less than unaffiliated firms. This paper contributes to the existing literature on internal capital markets by expanding the scope to emerging countries where market imperfections and financing constraints are more pronounced, and provides strong evidence for the role of business groups, prevalent in most emerging countries, in mitigating the constraints on the investments and financing choices of the group-affiliated firms.

This paper investigates the asymmetric behavior of the selling, general and administrative (SG&A) costs of acquirers, and reveals its effects on mergers & acquisitions (M&A) performance in a one-year event window. It is based on a sample of 6888 M&As completed in the U.S. during the 2003-2015 period and employs panel data regressions. The results show that 73% of the acquirers display asymmetric cost behavior. A significant negative relation is found between cost stickiness and acquirers' abnormal returns following the merger announcement. Competition in the market for corporate control is positively related with acquirer returns but exacerbates the negative effects of cost-stickiness on abnormal returns of acquirers. The acquirers' risk of default is significantly negatively related to the abnormal returns they generate. This adverse effect of default risk on returns is stronger for acquirers with anti-sticky costs. Acquirer risk offsets the positive effects of competition on returns. Acquirers with sticky costs have lower abnormal returns than those with anti-sticky costs in a one-year window. The present study contributes to the literature by revealing the asymmetric cost behavior of acquirers involved in merger activity during the last decade, and provides evidence for an alternative explanation for the lower abnormal returns of the acquiring firms.

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