Financial Distress Comparison Across Three Global Regions

Abstract

Globalization has precipitated movement of output and employment between regions. How similar are companies in different regions following this dramatic shift in economic activity? Corporate comparisons to test global convergence could be made along numerous dimensions. We look at firms along one dimension: what factors explain why they become financial distressed. Using a multidimensional definition of financial distress the study compiled a list of # companies in three worldwide regions. Various explanations of how corporate decline occurred in the three regions were tested using historical data. Three hypotheses describe how the three regional models of financial distress might be constructed. The null hypothesis assumes a single global model. Two alternate hypotheses relax this assumption. The null hypothesis was rejected in favor of a fully relaxed model which created individual financial distress models for each region. This result suggests that despite other indications of worldwide convergence that international differences in accounting rules, lending practices, managements skill levels, and legal requirements among others has kept corporate decline from becoming commoditized.

Keywords: bankruptcy, financial distress, global business

JEL Classification: G33, F30