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1 – 10 of over 3000
Article
Publication date: 27 July 2012

Thanuja Ramachandra and James Olabode Bamidele Rotimi

The construction industry suffers from significantly large number of insolvencies than other industries due to its inherent characteristics and these have dire…

Abstract

Purpose

The construction industry suffers from significantly large number of insolvencies than other industries due to its inherent characteristics and these have dire consequences on project participants and the industry at large. The purpose of this paper is to determine both the causes of liquidation and the distribution of losses to construction parties through an analysis of liquidators' reports on some construction firms based in New Zealand.

Design/methodology/approach

The study collates primary information from Liquidators' reports for firms operating within three main sub‐sectors of the construction industry. The information was then analysed using simple interpretative techniques for the period covering 2005 to 2009. Altogether the data set used for the analyses included 65 construction firms.

Findings

The major reasons for construction insolvencies are found to be: financial difficulties due to non‐payment, poor debt management, drop in property prices, and the liquidation of related companies. Other reasons are discussed within the paper. The paper also illustrates that liquidation of construction firms causes payment delays and consequential losses to project stakeholders. The results show that settlements of trade creditors take an average of 18 months and payment is usually not received fully after liquidation proceedings. It is apparent that there is little security for payment losses in construction insolvencies.

Originality/value

In this paper, information on reasons for and the consequences of liquidation provide a valuable thought‐starter for managing payment problems in the construction industry. The paper extends knowledge on possible security to payment losses experienced by lower tier project participants when the upper tiers become illiquid.

Details

Journal of Financial Management of Property and Construction, vol. 17 no. 2
Type: Research Article
ISSN: 1366-4387

Keywords

Article
Publication date: 1 August 2003

Nirosh Kuruppu, Fawzi Laswad and Peter Oyelere

Recent research questions whether bankruptcy is the best proxy for assessing going concern since filing for bankruptcy is not synonymous with the invalidity of the going…

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Abstract

Recent research questions whether bankruptcy is the best proxy for assessing going concern since filing for bankruptcy is not synonymous with the invalidity of the going concern assumption. Furthermore, in contrast to debtor‐oriented countries such as the USA, liquidation is the most likely outcome of corporate insolvency in creditor‐oriented countries such as the UK, Germany, Australia and New Zealand. This suggests that bankruptcy prediction models have limited use for assessing going concern in creditor‐oriented countries. This study examines the efficacy of a corporate liquidation model and a benchmark bankruptcy prediction model for assessing company liquidation. It finds that the former is more accurate in predicting company liquidations in comparison with the latter. Most importantly, Type 1 errors for the liquidation prediction model are significantly lower than for the bankruptcy prediction model, which indicates its greater efficacy as an analytical tool for assessing going concern. The results also suggest that bankruptcy prediction models might not be appropriate for assessing going concern in countries where the insolvency code is creditor‐oriented.

Details

Managerial Auditing Journal, vol. 18 no. 6/7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 10 September 2018

Mohd Irfan, Sarani Saha and Sanjay Kumar Singh

The purpose of this paper is to examine the factors associated with three modes of firms’ exit (voluntary liquidation, involuntary liquidation and acquisition) in a…

Abstract

Purpose

The purpose of this paper is to examine the factors associated with three modes of firms’ exit (voluntary liquidation, involuntary liquidation and acquisition) in a mutually exclusive environment. In particular, three modes of exit are treated as independent events given that different causes and consequences exist for each exit mode. The data set is a panel of 4,408 US manufacturing firms spanning over the period 1976–1995.

Design/methodology/approach

The discrete choice model is used to establish a relationship between modes of exit and a set of explanatory variables, which are specific to the firm, industry and macroeconomic conditions. Use of panel data encourages us to estimate a random effects multinomial logistic regression model, which allows exit modes as mutually exclusive events and at the same time controls the firm-specific unobserved heterogeneity in the sample.

Findings

The analysis suggests that the determinants of voluntary liquidation are age, size, profitability, technology intensity and inflation level. The determinants of involuntary liquidation are size, leverage, profitability and inflation level. For acquisition, determinants are age, size, advertising intensity, Tobin’s q, GDP growth, inflation level and interest rate. The findings suggest that exit modes have a different set of determinants and the scale of effects of some common determinants such as age, size and profitability differs between exit modes.

Research limitations/implications

The analysis presented in this study relies on data from US manufacturing firms only. Thus, there is a need to explore the determinants of exit modes in other countries as well using the proposed econometric model.

Practical implications

The findings presented in this paper are useful for managers and policymakers to design strategies/actions for avoiding particular mode of exit.

Originality/value

This study provides empirical evidence on the differences in factors associated with exit modes and confirms the existence of mutually exclusive nature of exit modes. Findings suggest that for future empirical studies on firm exit, the exit modes must be treated as a heterogeneous event.

Details

Journal of Economic Studies, vol. 45 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Book part
Publication date: 23 November 2015

Nicolae Stef

In bankruptcy, a reorganization procedure is based on the terms of a reorganization plan aimed to save a financially distressed firm. We provide an original approach of…

Abstract

In bankruptcy, a reorganization procedure is based on the terms of a reorganization plan aimed to save a financially distressed firm. We provide an original approach of the reorganization plan that we treated as a future contract that demands to creditors a certain degree of cost sharing. This paper examines how the sharing of the reorganization plan costs influences the bankruptcy outcome of such firm.

The sharing of the costs between creditors and debtor is analyzed by a static theoretical model that uses a Lagrangian approach.

We show that debtors have strong incentives to propose reorganization plans which provide an expected gain for creditors higher than the liquidation value of the firm and lower than the payment of the reorganization plan with an optimal sharing degree. Hence, a reorganization plan can be rejected by creditors if the sharing degree is too important.

The liquidation of the firm can be avoided if the design of the reorganization plan is improved by performing an appraisal or purchasing the services of an audit company.

The novelty of this paper resides in the distinction of two types of bankruptcy legal systems. The first one represents a pro-creditor or a creditor-friendly bankruptcy system in which the claimants’ payment is not limited to a fixed value written in the reorganization plan. Conversely, we treated the case of a debtor-friendly bankruptcy system which limits the creditors’ payment. The results of our model hold independently of the bankruptcy law orientation, that is, pro-creditor or pro-debtor.

Details

Economic and Legal Issues in Competition, Intellectual Property, Bankruptcy, and the Cost of Raising Children
Type: Book
ISBN: 978-1-78560-562-8

Keywords

Article
Publication date: 1 February 1996

Woodrow W. Cushing and Daniel E. McCarty

This study develops a model for estimating an index measure of asset specificity based on the liquidation value of corporate firms and the proportional distribution of…

Abstract

This study develops a model for estimating an index measure of asset specificity based on the liquidation value of corporate firms and the proportional distribution of their pre‐liquidation assets. A statistically significant positive relationship was found to exist between the estimated specificity index and financial leverage supporting the theoretical prediction. Additional evidence was found that firms with higher variability in sales, lower probabilities of failure, higher valued non‐debt tax shields and higher levels of financial slack use less financial leverage.

Details

Managerial Finance, vol. 22 no. 2
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 11 March 2022

Ba Hung Nguyen, Nhat Bao Quyen Pham and Thi Hong Ha Do

As small and medium-size enterprises (SMEs) rely on board heterogeneity to raise capital and establish credit relationships with suppliers, it is crucial to investigate…

Abstract

Purpose

As small and medium-size enterprises (SMEs) rely on board heterogeneity to raise capital and establish credit relationships with suppliers, it is crucial to investigate the board heterogeneity effect on their survival. In this study, the first research objective is to provide further insights on the discriminatory power of survival approaches, specifically on semiparametric approaches in survival analysis that take into consideration both fixed and time-varying covariates. The second objective is to examine the relationship between board size and SME liquidation by using resource-based theories that focus on measuring board heterogeneity through board size.

Design/methodology/approach

This paper uses survival approaches for modelling SMEs survival by examining the survival of more than 68,000 SMEs in the UK covering the before, onset and post 2008 crisis periods and with firms’ demographic characteristics and financial indicators. Survival analysis is effective to examine multiple causes of default/failure and how do particular circumstances or characteristics increase or decrease the probability of survival. Survival analysis brings more advantages than linear-based regression approaches by effectively handling the censoring of observations.

Findings

Motivated by resource-based theories, the authors find that the likelihood of a firm being liquidated robustly increases with a reduction in its board heterogeneity measured through board size. This finding is held under non-parametric, parametric, and semiparametric approaches using survival analysis. The research shows better causal explanation and discriminatory power on using the semiparametric-based survival analysis approach considering both fixed and time-varying covariates.

Practical implications

This study demonstrates the better performance and causal explanation of the survival model using time-varying covariates compared with those using fixed covariates. In addition, the authors delve into board heterogeneity, measuring through the board size to investigate how the number of board directors affects the firm liquidation, it is also a factor worth considering when a small and medium firm is forming its board.

Originality/value

This research investigates the board heterogeneity effect on firm survival using survival analysis approaches. The authors contribute to the knowledge on board heterogeneity of SMEs. Specifically, the size of more than three directors could help reduce SMEs liquidation risk. This result gives a recommendation to firms or start-ups when forming their director board. This research also provides further insights on the applicability of survival models with unique UK SMEs data covering the before, onset and post 2008 crisis periods.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

Keywords

Open Access
Article
Publication date: 9 June 2021

Fahad Alarifi

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while…

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Abstract

Purpose

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while highlighting some of the most essential operational steps and procedures in a bankruptcy proceeding under the law.

Design/methodology/approach

The approach adopted analyzes the specific mechanics and procedures of a bankruptcy law under the general policies and goals of bankruptcy. Additionally, where appropriate, a brief comparison to the US Bankruptcy code and its provisions is presented to provide an alternative approach on how similar issues are handled under a reputable and proven bankruptcy system.

Findings

Overall, the KSA Bankruptcy Law is a major accomplishment and advancement to the Kingdom’s insolvency regime. The law consolidated and codified the laws governing bankruptcy under the Kingdom’s prior regime, and followed the structure of a modern bankruptcy regime. In doing so, several of the law’s policies and objectives have been fulfilled by providing an effective, predictable and reliable bankruptcy system.

Originality/value

Given the relatively recent adoption of the KSA Bankruptcy Law, the paper provides a comprehensive assessment of the law’s operation and its effectiveness in achieving its policy goals as a modern bankruptcy law.

Details

PSU Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2399-1747

Keywords

Article
Publication date: 24 June 2021

Mahmoud Shahin

Through portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.

Abstract

Purpose

Through portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.

Design/methodology/approach

In this paper, the author extends the study by Allen and Gale (1998) by adding a long-term riskless investment opportunity to the original portfolio of a short-term liquid asset and a long-term risky illiquid asset.

Findings

Unlike Allen and Gale, there are no information-based bank runs in equilibrium. In addition, the model can improve consumers' welfare over the Allen and Gale model. The author also shows that the bank will choose to liquidate the cheaper investments, in terms of the gain-loss ratios for the two types of existing long-term assets, when there is liquidity shortage in some cases. Such a policy reduces the liquidation cost and enables the bank to meet the outstanding liability to depositors without large liquidation losses.

Originality/value

The author believe that the reader would be interested in this article because it is relevant to real world where depositors rush to withdraw their deposits from a bank if there is negative information about future prospect of the bank asset portfolio and bank investment. Economists and financial analysts need to determine the suitable mechanism to improve the stability of the bank and the depositor welfare.

Details

Journal of Economic Studies, vol. 49 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 7 September 2015

Ran Lu-Andrews and Yin Yu-Thompson

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the…

4227

Abstract

Purpose

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the liquidation value of the firm. The purpose of this paper is to examine the relations between CEO inside debt ratios and tangible assets (i.e. asset tangibility, liquidation value, and fixed asset investment).

Design/methodology/approach

The authors use the Ordinary Least Square (OLS) contemporaneous and lead-lag regression analyses. They also use two-stage least-square (2SLS) regression analysis for robustness check.

Findings

The findings are fourfold: first, CEO inside debt has a positive effect on asset tangibility of the firm; second, CEO inside debt has a positive effect on the liquidation value of the firm; third, CEO inside debt has a positive effect on the tangible asset investment (as measured by capital expenditures) of the firm; and fourth, these positive effects are found in both the contemporaneous year and the subsequent year and in both OLS and 2SLS frameworks. The research provides further evidence that CEOs with higher inside debt holdings exhibit safety-seeking behavior. The authors document direct proof for the theory proposed by Edmans and Liu (2011) that these CEOs, like any creditors, care a great deal of the asset tangibility and liquidation value of the firm.

Originality/value

This study contributes to the existing literature by providing further empirical evidence to support that CEO inside debt holdings have impacts on firm investment decisions and capital allocations. Inside debt does help align the executive managers’ personal incentive with firms’ value, and mitigate the agency conflicts between managers and debt holders. This study provides significant empirical evidence to support the theory suggested by Edmans and Liu (2011) that CEOs with higher level of inside debt holdings do care a greater deal about the asset liquidation value of the firm, and these firms tend to invest more in tangible assets to preserve the liquidation value.

Details

International Journal of Managerial Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 May 1997

Seow‐Eng Ong

Proposes a reputation‐based model to examine the managerial investment and liquidation decisions regarding real estate projects in developing countries. Unlike investments…

2432

Abstract

Proposes a reputation‐based model to examine the managerial investment and liquidation decisions regarding real estate projects in developing countries. Unlike investments in domestic projects, foreign investments are subject to noisy monitoring, resulting in a liquidation inefficiency where managers preserve their reputational capital by not liquidating projects likely to fail as long as negative signals are not revealed to the public. The manager’s decision to invest in foreign countries is influenced not only by the difference between foreign and domestic project returns, but also by the change in reputational capital. Shows that reputation‐based utility maximization can lead to an under‐investment in profitable foreign projects. Government support to invest in foreign countries can reduce the under‐investment problem, but it can also increase the liquidation inefficiency.

Details

Journal of Property Valuation and Investment, vol. 15 no. 2
Type: Research Article
ISSN: 0960-2712

Keywords

1 – 10 of over 3000