The Characteristics of Corporate Distress in an Emerging Market: The Case of China

44 Pages Posted: 15 Apr 2005

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: March 15, 2005

Abstract

This paper is one of the first studies to empirically examine the nature and cause of financial distress in an emerging market context. This is important given the impact of the recent global privatization phenomenon. These privatized firms have since been subject to a new competitive environment, redefined objectives and management incentives. In this context, we investigate the characteristics of a sample of 100 distressed firms in China between 1999 and 2003. Existing bankruptcy and distress literature cites two main causes of financial distress: debt overhang and economic distress. By comparing the distressed firms' financial and operating performance with that of their respective industries, we conclude that corporate distress in China is caused predominantly by firm level poor operating performance, not by leverage. Our evidence indirectly speaks to the debate that financial renegotiations between distressed firms and their creditors are inefficient. In addition, our sample provides a unique opportunity to study how (partial) government ownership affects firm performance and efficiency in the context of financial distress and soft budget constraints.

Keywords: Financial distress, economic distress, performance, operating efficiency, emerging markets, SOE

JEL Classification: P27, G34, G32, L25, G33

Suggested Citation

Kam, Amy and Citron, David B. and Muradoglu, Yaz Gulnur, The Characteristics of Corporate Distress in an Emerging Market: The Case of China (March 15, 2005). Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=690181 or http://dx.doi.org/10.2139/ssrn.690181

Amy Kam (Contact Author)

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)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
580
Abstract Views
2,935
rank
48,479
PlumX Metrics