Determinants of post-bankruptcy performance : an empirical study of insolvent companies in Thailand

This thesis examines determinants of post-bankruptcy performance by using insolvent firms under the bankruptcy reorganization proceedings of the 1940 Thai Bankruptcy Act. The purpose of the study is to investigate whether the key governance mechanisms within this process are factors which may contribute to successful reorganization and how they affect a firm's post-bankruptcy performance. Using agency theory, a sample of III filing companies whose plans have been confirmed by the Thai Central Bankruptcy Court during 1999-2002 provide the data of the study. Descriptive statistics and ordinary least squares regression analysis are employed for data analysis. The results indicate that among three types of governance mechanisms in the bankruptcy reorganization process, namely, monitoring, incentive and restructuring mechanisms, monitoring and incentive mechanisms are significant determinants of a firm's post-bankruptcy performance. The key monitoring mechanism is ownership concentration of common shares held by the largest shareholder, whereas the critical incentive mechanisms are cash compensation for the plan administrator and percentage of common shares held by the plan administrator. Asset restructuring is statistically insignificant but positively links to post-bankruptcy performance. The results indicate that these mechanisms can mitigate agency problems of insolvent companies and increase post-bankruptcy performance over a three year period

Corporate governance and post-bankruptcy reorganisation performance: Evidence from Thailand

Purpose - This research investigates the role of key corporate governance mechanisms in determining a firm's post-bankruptcy performance following reorganisation. Design/Methodology/Approach - The study is based in agency theory and uses a unique sample of 111 filing companies whose reorganisation plans have been confirmed by the Thai Central Bankruptcy Court during the period of 1999-2002. Findings - The results indicate that monitoring and incentive mechanisms are significant determinants of a firm's post-bankruptcy performance. The key monitoring mechanism is ownership concentration, measured by shares held by the largest shareholder, whereas the critical incentive mechanisms are cash compensation and percentage of common shares held by the plan administrator. The results indicate that these mechanisms can mitigate agency problems in previously insolvent companies and increase post-bankruptcy performance over a three year period. Originality/Value - The study is timely given that many organisations are facing rebuilding programs following the impact of the global financial crisis. Prior research in Thailand and elsewhere has not measured bankruptcy reorganisation outcomes in terms of the difference of actual financial performance to predicted performance and in relation to the governance factors of the reorganisation process. Neither has this aspect been considered within an agency theory framework. This provides a unique opportunity to consider these variables based on the theoretical framework of agency theory and to evaluate the importance of governance mechanisms in reorganisation proceedings

Effect of Air Carrier Restructuring Strategies on Post-bankruptcy Performance

Air carrier bankruptcy is a common occurrence in the aviation industry. However, there is a paucity of research on the topic of air carrier restructuring during the post-bankruptcy period. General restructuring literature has identified four types of actions: operational, financial, managerial, and portfolio. The purpose of this study was to partially fill the large literature gap in the area of air carrier post-bankruptcy performance through theoretical and practical contributions. A multilevel exploratory factor analysis was conducted to explore whether the same restructuring areas were found in air carrier specific metrics. All four restructuring areas were found in the factor analysis. Next, multilevel modeling was conducted to determine whether each restructuring action had a significant impact on post-bankruptcy performance. The dependent variable used for analysis was the P-Score, an air carrier distress measure. Independent variables were air carrier specific, derived from literature to measure restructuring strategies. The restructuring period was defined as the quarter of bankruptcy filing until three years after emerging from bankruptcy protection. U.S. Department of Transportation financial and operational data from the total population of 25 large air carriers that have emerged from bankruptcy protection was used for analysis. Operational, financial, and portfolio restructuring were found to have a significant impact on post-bankruptcy performance during the post-bankruptcy period. Managerial restructuring was not found to be significant during the post-bankruptcy period. Additional research of managerial restructuring is needed to better understand this strategy among distressed air carriers. To improve air carrier performance during bankruptcy and restructuring, management should attempt to reduce the cost of transport, consider deleveraging, and acquire debtor-in-possession financing. This study has contributed theoretically and practically to air carrier restructuring theory. This is the first study to explore air carrier specific restructuring metrics for underlying factors and the first to measure restructuring strategies in all large air carriers that have emerged from Chapter 11 bankruptcy. Additionally, this study is the first to apply multilevel modeling to bankruptcy restructuring research

Post-Chapter 11 Bankruptcy Performance: Avoiding Chapter 22

Forty years ago, I developed a method of predicting bankruptcies by U.S. [public] companies that makes use of equity market values as well as fundamental financial and operating data. Since that time, my “Z-Score” model has become one of the most widely used methods for assessing the creditworthiness of manufacturing companies throughout the world. And it continues to be used by both finance scholars and practitioners in a variety of ways, including credit and debt analysis, investment decisions, merger and acquisition screens, audit-risk analysis, and receivables management. It has also been used by corporate managers and their advisers when managing turnarounds of distressed companies. This article extends the use of bankruptcy prediction models to a new application: the assessment of the health of industrial companies as they emerge from the Chapter 11 bankruptcy process, including the probability that the companies will have to file for bankruptcy again—the so-called “Chapter 22” phenomenon. Using a modified Z-Score model, I find significant economic differences between those companies that emerge from Ch. 11 and survive as going concerns and those that later file again. In particular, companies that filed a second Chapter 11 had significantly higher leverage and lower profitability shortly after emerging the first time. The predictive ability of this modified Z-Score suggests it can be used as a effective tool for evaluating the quality and efficacy of the bankruptcy reorganization plan

Successful turnaround strategy: Thailand evidence

Purpose – This research seeks to determine the success of turnaround strategies adopted by corporations in Thailand following post-bankruptcy reorganization plans approved by the Thai Central Bankruptcy Court. Design/methodology/approach – The study uses a sample of 101 companies whose reorganization plans have been confirmed by the Thai Central Bankruptcy Court in the period 1999-2002, with performance measures to 2005. Findings – The results indicate that over a three-year reorganization period successful companies were found to be most likely to adopt cost and expense reduction, company size reduction and disposal of non-core assets while operational strategies aimed at reconfiguring internal operations and systems were not likely to be associated with successful companies. Practical implications – The data suggests, subject to limitations, the selection of restructuring methods may differ between those companies which successfully reform and those which do not. Companies pursuing successful turnaround strategies were found most likely to adopt cost and expense reduction, company size reduction and disposal of non-core assets as significant operational strategy. Originality/value – Prior research in Thailand has not investigated turnaround strategy of successful and unsuccessful companies. The result of the study has practical significance as it provides information of use to regulators, management, lenders, creditors, practitioners, and investors. The prevailing economic conditions worldwide suggest the need for replication and continual refinement of research in this area, not only in Thailand but elsewhere

Toward Developing an Academic Discipline

It is not often in the life of an academic or of an academic institution that circumstances coalesce to bring about a new academic discipline. But it happened recently, thus a review of the circumstances may be of interest and potentially instructive. Disciplines are typically characterized as a field of study at institutions of higher learning; they have a definable body of knowledge, scholars who contribute to that body of knowledge, teachers who teach in the field, a community of people who identify with the field, a refereed journal, are often associated with a professional practice and, in many cases, the discipline offers a doctorate as the terminal degree. Prior to 2008 the academic discipline of aviation did not exist. While working at Central Missouri State University (CMSU) in his previous position, the then department chair of the Power and Transportation Department had been involved in the development of a multi-university Ph.D. program in Technology Management at Indiana State University (ISU). As the ISU program was being developed, a needs analysis survey revealed that there was a high interest in aviation as a specialization. The chair then left CMSU for the position of dean of the College of Aviation at the Daytona Beach campus of Embry-Riddle Aeronautical University (ERAU) and, consequently, the aviation specialization was not developed in the ISU program. However, the new ERAU dean’s vision for an aviation Ph.D. was established. Soon the dean began to advocate for developing a Ph.D. in aviation. There is a substantial need for research and, thus, qualified well-trained researchers in the field of aviation. Commercial aviation has entered its second century and, quite literally, has transformed the world. It is estimated that over 3 billion passengers and 50 million tons of cargo are transported on commercial aviation annually, supporting over 57 million jobs and $2.2 trillion in economic activity. ERAU authorized the dean to establish a Ph.D. planning committee. One of the first tasks of the planning committee was to quantify the demand. A survey was provided to 10,356 students and alumni. The results were surprising. Of the responses, 1,903 (83%) indicated either Strongly Agree (50.4%) or Somewhat Agree (33.9%) to the statement: I would be interested in enrolling in ERAU’s Ph.D. program in Aviation program. With this strong evidence, the committee presented the program to the Board of Trustees which approved it in 2007. Shortly afterward, the institution submitted an application to the Southern Association of Colleges and Schools (SACS) Commission on Colleges, which denied it for various reasons, but the most poignant was this statement, “Address faculty qualification issues. Specifically, ensure that faculty have terminal degrees that relate to the courses they are teaching and/or have specific and described ‘other qualifications’ that make them appropriate instructors.” Since there was no previous terminal (Ph.D.) degree in aviation, it became necessary to select faculty who possessed the doctorate in some other field and whose academic and professional backgrounds matched the subject matter of the course to be taught. Using this strategy, a second application was submitted to SACS which was accepted. The first cohort of students began in 2010. The program admits only one cohort of approximately 15 students each year and now has an enrollment of 65 students. Eight have graduated. Early on in the development of the program the faculty realized that they had the opportunity to select a color to be associated with the degree; the color is often used for trimmings of doctors’ gowns, edging of hoods, and tassels of caps. While dark blue was an option since that color is associated with philosophy, the faculty desired to identify a color that would be unique to the discipline of aviation, much like purple is to law, orange is to engineering, and drab is to business. Examination into this issue revealed two interesting facts. First, there is no single authority on associating a color with a discipline. There are agencies that publish the various discipline colors, such as the American Council on Education (ACE), but none that acts as an approval agency. ACE encouraged the university to adopt the color of its choice. Second, nearly every color is already associated with a discipline. In all there are 25 color and discipline combinations listed by ACE, including obscure colors such as peacock blue (public administration), lilac (dentistry), citron (social work), and apricot (nursing). Armed with that information, the faculty considered several colors and ultimately decided to associate the color with something meaningful to the field of aviation – silver was chosen in honor of the color of the Wright Flyer

An In-Depth Analysis of the Altman’s Failure Prediction Model on Corporate Financial Distress in Uchumi Supermarket in Kenya

Many firms in developing and transitional economies are in financial distress situation, due to low level of debt service coverage. The study of financial distress has become a significant global issue after the global financial crisis of 2008. The soaring global financial crisis which has resulted to increased cases of business failures resulting from the effect of bankruptcy as well as insolvency. This study therefore was conducted with the objective of Altman’s failure prediction model in predicting corporate financial distress in Uchumi Supermarkets in Kenya.  The study sourced data from secondary sources. The data was obtained from financial reports, library, and organization’s records such as in-house magazines, journals, publications as well as website and other resourceful information available at the Uchumi supermarket secretariat for 5 years from 2001 to 2006. The data extracted include ratios such as current assets and liabilities, total assets, retained earnings, earnings before interest and taxes, book value of the equity and sales. Data analysis involved preparation of the collected data, coding, editing and cleaning of data in readiness for processing using SPSS and Microsoft office excel.  In the analysis, Multivariate Discriminant Analysis (MDA) statistical technique as used by Altman (2006) was adopted. Altman (2006) is of the opinion that ratios measuring profitability, liquidity and solvency are the most significant ratios. The study has established that the Altman failure prediction model was appropriate to Uchumi supermarket as it recorded declining Z-score values indicating the company experienced financial distress and that is why the company was delisted from the NSE in 2006. In line with these results, the study has recommended that; the policy makers of Uchumi supermarket should continuously adopt the use of Altman failure prediction model in order to determine the growing of the company and the state in which the company occurs as recommended by the Altman model in which there are safe zone, grey zone and distress zone.  This study highly recommends to the potential investors in companies to use the Altman failure prediction model as an assessment tool. The results could raise certain questions about the state of a company and could ultimately result in an investor investing or purchasing a company that is profitable and well-managed company since declining Z-score values depicts a failing company. Keywords: Financial Distress, Financial Ratios, Altman’s Failure Prediction Model.