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Distress Without Bankruptcy: An Emerging Market PerspectiveJoseph P. H. FanChinese University of Hong Kong (CUHK) - School of Accountancy Jun HuangShanghai University of Finance and Economics - School of Accountancy Ning ZhuChina Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management February 2009 Abstract: We investigate how institutional factors influence behavior of distressed firms in emerging markets, where bankruptcy laws are often weak and debtors have greater bargaining power in distress. By studying a comprehensive sample of distressed firms in China, a representative of the cases in other emerging markets, we find that institutional background matters considerably to distress resolution. Distressed companies facing better institutional background (i.e. with less state ownership structure, in regions with better government quality and greater degree of local financial development), display relatively better operating performance, more disciplined capital structure, and higher ultimate recovery likelihood. Our findings provide novel evidence on how institutional factors discipline distressed firm behavior and facilitate distress resolution in emerging markets.
Number of Pages in PDF File: 45 Keywords: Institution; Distress; Bankruptcy; Emerging Market JEL Classification: P48, G33, G32 working papers seriesDate posted: March 17, 2009Suggested CitationContact Information
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