The influence of managerial incentives on the resolution of financial distress

Kim, Dong-Kyoon; Kwok, Chuck C.Y.

doi:10.1007/s11156-008-0085-8

Cited by 5 publications

(3 citation statements)

References 34 publications

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“…Bu durum, büyük irketlerin göreli pazarl k güçleri daha fazla oldu u için yasal iflas süreci nda yeniden yap land rmay tercih ettiklerini göstermektedir (Claessens vd., 2003: 210-215). Benzer sonuçlar elde edildi i, özel yeniden yap land rma ve yasal yeniden yap land rman n kar la ld bir di er çal mada da; küçük irketlerin, yasal süreci seçme e iliminde olduklar sonucuna var lm r (Kim/ Kwok, 2008).…”

Section: Irketin öLçe I Ve Varl K Yapunclassified

Fi̇nansal Sikintili Şi̇rketlerde Yeni̇den Yapilandirma Süreçleri̇ Ve Yeni̇den Yapilandirma Süreçleri̇ni̇n Seçi̇mi̇ni̇ Etki̇leyen Faktörler

Sayilgan¹,

Çoşkun²

2009

Ankara Üniversitesi SBF Dergisi

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ÖzetFinansal s nt dan kurtulmak isteyen irketler iki yeniden yap land rma sürecinden birini seçebilir: "Mahkeme d özel yeniden yap land rma" veya "iflas yasalar çerçevesinde mahkeme gözetiminde yeniden yap land rma". Mahkeme d özel yeniden yap land rmalar n maliyeti genel olarak daha az olmakla birlikte direnme problemi olas yüksektir. flas sürecinde yeniden yap land rman n ise dava ve takiplerin durmas , yeniden yap land rma plan n belli bir ço unlu un kabul etmesi ile uygulamaya konulabilmesi gibi avantajlar yan ra; maliyetinin daha yüksek olmas ve uzun zaman almas gibi nedenlerle irketler taraf ndan "son çare" olarak da görülmektedir. Borç yeniden yap land rma sürecinin seçiminde; irketteki ç kar çat mas n yayg nl , koordinasyon problemi, likidite s kl n iddeti gibi irket özellikleri de etkili olmaktad r. Bu çal man n amac , yeniden yap land rma süreçlerinin seçiminde etkili olan faktörleri incelenmek ve ilgili ampirik çal malar n sonuçlar n özetlendi i bir literatür taramas yapmakt r.Anahtar Kelimeler: Finansal s nt , yeniden yap land rma, özel yeniden yap land rma, iflas sürecinde yeniden yap land rma.Jel S fland rmas : G33, G34. Reorganization Procedures in Financially Distressed Firms and Determinants of the Choice of Reorganization Procedure AbstractFirms have two alternative ways of restructuring to resolve financial distress: out-of-court reorganization (workouts or exchange offers mechanisms) and bankruptcy reorganization under bankruptcy codes (court supervised mechanisms). Out-of-court restructuring incurs relatively low costs but has high potential holdout problems. Bankruptcy reorganization under bankruptcy codes provides several benefits for distressed firms, such as: "automatic stay", "cram down" in bankruptcy reorganization. However, the disadvantages of a formal bankruptcy reorganization are its lengthy process and relatively high costs. Because of the disadvantages of legal bankruptcy reorganization, many firms generally turn to this procedure only as the last resort. Firm's decision on the choice of debt restructuring method is also influenced by firm characteristics determinants such as interest conflict, severity of a firm's liquidity crisis; extent of creditor's coordination problems. The aim of this study is to investigate determinants of the choice of reorganization procedures and to present the results of related empirical studies.

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Section: Irketin öLçe I Ve Varl K Yapunclassified

Fi̇nansal Sikintili Şi̇rketlerde Yeni̇den Yapilandirma Süreçleri̇ Ve Yeni̇den Yapilandirma Süreçleri̇ni̇n Seçi̇mi̇ni̇ Etki̇leyen Faktörler

Sayilgan¹,

Çoşkun²

2009

Ankara Üniversitesi SBF Dergisi

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“…Out-of-court restructuring is preferable to in-court restructuring only when the number of creditors is small and the creditors are mostly financial institutions (Gilson et al , 1990; Jostarndt and Sautner, 2010). In addition, there is evidence of a positive association between the presence of owners–managers and the decision to choose in-court rather than out-of-court restructuring (Kim and Kwok, 2009). Although private agreements have been boosted by growth in the distressed asset investment industry (Cumming and Fleming, 2015), out-of-court restructuring does not represent the easiest solution in complex situations.…”

Section: Introductionmentioning

confidence: 99%

Audit quality and debt restructuring: evidence from Italy

Magri,

Marchini

2023

MAJ

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Purpose This study aims to investigate the link between audit quality and in-court debt restructuring. The aim is to understand whether the confirmation of debt restructuring plans is affected by audit quality, which, in the light of agency theory, reduces information asymmetries between outsiders (creditors and the court) and insiders (shareholders and managers) of the debtor company. Design/methodology/approach A logistic regression is performed to test whether higher audit quality is associated with an increased probability of successfully completing a debt restructuring proceeding (RP). Consistent with the literature, audit quality is assessed ex ante based on auditor size, which is used as a proxy for independence. The analysis considers private Italian companies. Findings Audit quality positively affects debt restructuring. Among financially distressed companies, those audited by an audit company are more likely to succeed in RPs than those audited by a single practitioner. There is no evidence of a Big N effect. Originality/value This study fills a gap in literature as, in contrast to other financial and governance characteristics, audit quality has never been studied before as a determinant of efficient restructuring. It contributes to the literature on auditing and governance by highlighting the importance of audit quality in complex situations such as RPs, and it expands on debt restructuring literature by considering the importance of the information exchanged during RPs.

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“…In practice, when a firm's financial conditions deteriorate, its total liabilities, including obligations to suppliers, employees, and speculative lenders, may accumulate and exceed F in the model. 12 It is also difficult for a financially distressed firm to issue equities except for distributing equities to creditors as a medium of debt restructuring.13 Kim and Kwok (2009) hypothesize that management ownership affects the likelihood of bankruptcy. However, their hypothesis depends on the assumption that shareholders retain more value in bankruptcy (Chapter 11) than in private reorganization, which does not seem plausible at least in Japan.…”

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confidence: 99%

<b>Management Ownership and Risk-Shifting Investment</b>

Teshima

2012

TJAR

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This study analyzes the relationship between management ownership and its risk-shifting incentive. We first present a simple model showing that the risk-shifting incentive of management of financially distressed firms increases as the management ownership of the firm increases. Empirically, we test the hypothesis that under the former Japanese Corporate Reorganization Law, firms with higher management ownership are more likely to use legal rather than private reorganization. Since the reorganization process under the law virtually eliminates the possibility of risk-shifting investment, creditors are more likely to prefer the legal process to private process, when management ownership is higher. Empirical results are consistent with the hypothesis.

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The influence of managerial incentives on the resolution of financial distress

Abstract: Managerial incentives, Financial distress resolution, G32, G33,

Cited by 5 publications

References 34 publications

Fi̇nansal Sikintili Şi̇rketlerde Yeni̇den Yapilandirma Süreçleri̇ Ve Yeni̇den Yapilandirma Süreçleri̇ni̇n Seçi̇mi̇ni̇ Etki̇leyen Faktörler

Fi̇nansal Sikintili Şi̇rketlerde Yeni̇den Yapilandirma Süreçleri̇ Ve Yeni̇den Yapilandirma Süreçleri̇ni̇n Seçi̇mi̇ni̇ Etki̇leyen Faktörler

Audit quality and debt restructuring: evidence from Italy

<b>Management Ownership and Risk-Shifting Investment</b>

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