Financial Distress Resolution in China - Two Case Studies

36 Pages Posted: 19 Oct 2007

See all articles by Amy Kam

Amy Kam

City University London - Faculty of Finance

David B. Citron

City University London - Sir John Cass Business School

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Date Written: October 15, 2007

Abstract

This paper examines two financially distressed companies and their restructuring strategies. The existing distress literature focuses on developed economies such as U.S. and U.K. This paper is a pioneering work in an emerging market context. The main purpose of the case studies is to provide rich in-depth evidence on complex events which large-scale empirical studies of necessity ignore. To achieve this, the paper first analyses the firms' accounting-based performance, both pre- and post-distress, to understand the nature of the firms' difficulties. It then examines the series of complex restructuring procedures each firm initiated and uses an event study approach to evaluate the stock market's reaction to these strategies. We provide an in-depth understanding of the special features of the Chinese situation, such as the role of government and other more commercially driven shareholders; the subsequent importance of social policy issues; the protracted and complex nature of the restructurings; and the frequent use of mergers, share transfers, asset swaps and asset sales. The analysis provides new hypotheses for further empirical study on a large-scale basis.

Keywords: Distress, restructuring, emerging markets, case studies

JEL Classification: P27, G34, L10, G33

Suggested Citation

Kam, Amy and Citron, David B. and Muradoglu, Yaz Gulnur, Financial Distress Resolution in China - Two Case Studies (October 15, 2007). Available at SSRN: https://ssrn.com/abstract=1021821 or http://dx.doi.org/10.2139/ssrn.1021821

Amy Kam

City University London - Faculty of Finance ( email )

Cass Business School
106 Bunhill Row
London, EC1Y 8TZ
Great Britain

David B. Citron

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 040 8665 (Phone)
+44 207 040 8881 (Fax)

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

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