Distress Without Bankruptcy: An Emerging Market Perspective

45 Pages Posted: 17 Mar 2009

See all articles by Joseph P. H. Fan

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Jun Huang

Shanghai University of Finance and Economics

Ning Zhu

China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

Keywords: Institution; Distress; Bankruptcy; Emerging Market

JEL Classification: P48, G33, G32

Suggested Citation

Fan, Po Hung Joseph P. H. and Huang, Jun and Zhu, Ning, Distress Without Bankruptcy: An Emerging Market Perspective (February 2009). Available at SSRN: https://ssrn.com/abstract=1360873 or http://dx.doi.org/10.2139/ssrn.1360873

Po Hung Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
(852) 26097839 (Phone)
(852) 26035114 (Fax)

Jun Huang (Contact Author)

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Ning Zhu

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Yale School of Management ( email )

135 Prospect Street
Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://pantheon.yale.edu/~nz26/

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-3871 (Phone)
530-752-2924 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
258
Abstract Views
1,663
rank
60,191
PlumX Metrics