Agency behavior and corporate restructuring choices during performance decline in an emerging economy

Abstract

Purpose

Restructuring strategies are complicated processes and choices are influenced by and interact with the agreements and conflicts of interest among stakeholders. Firms in the emerging economies are characterized by high growth, high leverage, less effective corporate governance and different legal and institution context as compared to the firms in the developed economies. The purpose of this paper is to explain the agency monitoring variables that influence decisions to select and/or avoid restructuring strategies of the firms that have experienced a performance decline in an emerging economy. The authors have chosen Thailand as an example of an emerging economy as it was believed as the center of the major Asian economic crisis in mid-1997.

Design/methodology/approach

The sample of the study comprises 120 Thai non-financial firms listed on the Stock Exchange of Thailand, all of which experienced a performance decline for two consecutive years during 1997-2008; the years 1997 and 1998 coinciding with financial crisis. The study uses panel logistic regressions to examine the likelihood of the choices of restructuring strategies given the agency variables after controlling for other possible influences.

Findings

The results show that restructuring strategy choices are significantly influenced by both agency factors and control variables. The results show both similarities to and differences from earlier studies of the developed economies. The similarities are found in leverage agency behaviors. The differences in the results are found in the types and the details of the agency factors, in particular the management ownership and governance factors. The authors also explore the effects of the agency variables interactions on the choices of restructuring strategies of the performance-declining firms.

Research limitations/implications

Emerging economies have many similarities, but they also demonstrate some country specific differences. This study is confined to one single country, and thus, may not be comparable with other emerging economies due to differences in factors such as regulatory, institutional, tax environments etc. However, it does show a way to conduct such studies in the context of other countries.

Originality/value

To the knowledge, this is the first comprehensive study of corporate restructuring in an emerging economy, particularly of the South-East Asian economy. The authors also show, for the first time, the agency variables interactions effects on the restructuring strategies of the firms. Thus, the study contributes to the growing literature of the corporate restructuring in terms of the contextual knowledge of the emerging economies.

Citation

Pandey, I.M. and Ongpipattanakul, V. (2015), "Agency behavior and corporate restructuring choices during performance decline in an emerging economy", International Journal of Managerial Finance, Vol. 11 No. 2, pp. 244-267. https://doi.org/10.1108/IJMF-03-2014-0035