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Book part
Publication date: 2 September 2020

Olimpia Livia Preda Buzgurescu and Negru Elena

Introduction – The Romanian industry was one of the most important traditional branches and in the context of the integration of the country into the European Union, the…

Abstract

Introduction – The Romanian industry was one of the most important traditional branches and in the context of the integration of the country into the European Union, the Romanian industry has made progress in the development of several types of industrial branches, attracting in this sector investors with foreign capital that have determined economic growth by branch having a major impact on the achievement of gross domestic product. The progress and sustainable development of a country is interdependent on both macroeconomic and microeconomic development, and the development of a branch of the economy leads to the creation of a stable environment for attracting new investors and implicitly to the upward evolution of the economy by branch.

Purpose – This article identifies models of bankruptcy risk analysis that have as variables relevant performance indicators for examining the bankruptcy risk of Romanian industrial companies so that it is verified how predictable and significant it is to avoid their potential bankruptcy.

Methodology – By using performance indicators such as liquidity, profitability and insolvency, the analysis aims to be a benchmark for the Romanian industrial companies’ research in terms of bankruptcy risk, but also the accuracy of the models chosen to diagnose a potential bankruptcy.

Findings – There was highlighted a strong relationship between the economic and financial indicators and the Z score functions.

Details

Contemporary Issues in Business Economics and Finance
Type: Book
ISBN: 978-1-83909-604-4

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Article
Publication date: 1 May 1994

Hamid Tavakolian

The origin of bankruptcy dates back to the laws of the Roman Empire which were instrumental in the formation of both English and American laws (Galligan, 1991). However…

Abstract

The origin of bankruptcy dates back to the laws of the Roman Empire which were instrumental in the formation of both English and American laws (Galligan, 1991). However, it was not until 1898 that the United States enacted its bankruptcy laws for the first time. Later, the Chandler Act of 1938 was added in order to legislate reorganisation into existing bankruptcy laws. In order to expand this critical domain, the 1978 Bankruptcy Reform Act was made into law. Finally, Congress passed the Bankruptcy Amendments and Federal Judgeship Act in 1984 so that some weaknesses in the 1978 reform act could be improved.

Details

Management Research News, vol. 17 no. 5/6
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 26 July 2021

Billie Ann Brotman

Flood damage to uninsured single-family homes shifts the entire burden of costly repairs onto the homeowner. Homeowners in the United States and in much of Europe can…

Abstract

Purpose

Flood damage to uninsured single-family homes shifts the entire burden of costly repairs onto the homeowner. Homeowners in the United States and in much of Europe can purchase flood insurance. The Netherlands and Asian countries generally do not offer flood insurance protection to homeowners. Uninsured households incur the entire cost of repairing/replacing properties damaged due to flooding. Homeowners’ policies do not cover damage caused by flooding. The paper examines the link between personal bankruptcy and the severity of flooding events, property prices and financial condition levels.

Design/methodology/approach

A fully modified ordinary least squares (FMOLS) regression model is developed which uses personal bankruptcy filings as its dependent variable during the years 2000 through 2018. This time-series model considers the association between personal bankruptcy court filings and costly, widespread flooding events. Independent variables were selected that potentially act as mitigating factors reducing bankruptcy filings.

Findings

The FMOLS regression results found a significant, positive association between flooding events and the total number of personal bankruptcy filings. Higher flooding costs were associated with higher bankruptcy filings. The Home Price Index is inversely related to the bankruptcy dependent variable. The R-squared results indicate that 0.65% of the movement in the dependent variable personal bankruptcy filings is explained by the severity of a flooding event and other independent variables.

Research limitations/implications

The severity of the flooding event is measured using dollar losses incurred by the National Flood Insurance program. A macro-case study was undertaken, but the research results would have been enhanced by examining local areas and demographic factors that may have made bankruptcy filing following a flooding event more or less likely.

Practical implications

The paper considers the impact of the natural disaster flooding on bankruptcy rates filings. The findings may have implications for multi-family properties as well as single-family housing. Purchasing flood insurance generally mitigates the likelihood of severe financial risk to the property owner.

Social implications

Natural flood insurance is underwritten by the federal government and/or by private insurers. The financial health of private property insurers that underwrite flooding and their ability to meet losses incurred needs to be carefully scrutinized by the insured.

Originality/value

Prior studies analyzing the linkages existing between housing prices, natural disasters and bankruptcy used descriptive data, mostly percentages, when considering this association. The study herein posits the same questions as these prior studies but used regression analysis to analyze the linkages. The methodology enables additional independent variables to be added to the analysis.

Details

Property Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0263-7472

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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…

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

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Article
Publication date: 15 June 2021

Edmund Goh, Saiyidi Mat Roni and Deepa Bannigidadmath

Financial bankruptcy is inevitable in the tourism and hospitality ecosystem. Despite the pertinence of tourism and hospitality businesses going into bankruptcy, limited…

Abstract

Purpose

Financial bankruptcy is inevitable in the tourism and hospitality ecosystem. Despite the pertinence of tourism and hospitality businesses going into bankruptcy, limited studies have investigated the early warning signs and likelihood of a financial bankruptcy occurring in tourism and hospitality firms. This study examined the predictive value of financial ratios as potential indicators in predicting bankruptcy among tourism and hospitality firms.

Design/methodology/approach

Altman's z-score bankruptcy prediction model was applied through five key financial ratios to predict bankruptcy of the Thomas Cook Travel Group over a ten year period (2008–2018).

Findings

The key findings of this study strongly suggest that besides the size and location of the firm, financial ratios are reliable predictors and play a pivotal role in predicting the bankruptcy of a tourism and hospitality business.

Practical implications

The paper provides key stakeholders to adopt checks and balances to identify financial distressed tourism firms through financial ratios.

Originality/value

This is the first academic paper to inspect the financial history of Thomas Cook Travel Group in a financial ratio context, particularly following the bankruptcy of the firm in 2019.

Details

Asia Pacific Journal of Marketing and Logistics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1355-5855

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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.

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

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Article
Publication date: 26 March 2021

Palash Deb and Vipin Sreekumar

The authors investigate whether firms in learning-intensive industries are more prone to bankruptcy and how this shapes a firm's financing choices.

Abstract

Purpose

The authors investigate whether firms in learning-intensive industries are more prone to bankruptcy and how this shapes a firm's financing choices.

Design/methodology/approach

Industry learning estimates based on US manufacturing firms are obtained from the study of Balasubramanian and Lieberman (2010; 2011), who collected these estimates from the US Census Bureau. Merging the learning estimates with data from Compustat gives us a final sample of 6,138 publicly-traded US manufacturing firms (56,930 firm-years) between 1973 and 2000. The authors use both OLS and IV estimation approaches to test the hypotheses.

Findings

The findings confirm that firms operating in learning-intensive industries have a higher threat of bankruptcy. The authors also find that a debt-intensive capital structure exacerbates the threat of bankruptcy; therefore, firms in such industries have a significantly lower reliance on debt financing.

Practical implications

In the current turbulent business environment, managers operating in learning-intensive industries need to be more careful while making financing choices between debt and equity, and they can explore sources of financing that go beyond the capital markets.

Originality/value

No study so far has examined how industry learning intensity, a key industry characteristic, makes firms more prone to bankruptcy, and how this threat of bankruptcy results in more conservative financing choices. By integrating the theoretical perspectives from the structure–conduct–performance (SCP), transaction cost economics (TCE) and threat rigidity paradigms, this paper contributes to the literature by adding the industry learning environment as a novel determinant of firm financing choices and the threat of bankruptcy.

Details

Journal of Strategy and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-425X

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Book part
Publication date: 6 November 2015

Enrico Guarini, Anna De Toni and Cinzia Vallone

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the…

Abstract

Purpose

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the organizational level (micro) and the regulatory system (macro).

Methodology/approach

We use a relevant case of municipal bankruptcy in Italy to discuss the influence of governance characteristics, such as the political and management structure, interaction, and behaviors. The issues related to the accounting system and external audits are also considered. The data for this study are obtained from secondary sources such as audited budgetary reports, public documents, and reports from the Supreme Audit Institution.

Findings

The study indicates that the spoils system can favor the politicians’ exercise of power over public managers and undermine the capacity to prevent and manage financial distress. Poor accounting and weak control systems may facilitate this process. The high turnover of top management throughout a mayor’s term in office may reflect political pressure to force accounting rules and achieve flexibility to obtain the expected results or to correct poor financial performance.

Practical implications

To avert municipal bankruptcies, regulations should consider enforcing ex ante control by external oversight bodies, forbidding risky operations and limiting the spoils system for financial management positions and internal auditors.

Originality/value

Municipal defaults around the world have indicated that regulations and audits are ineffective to prevent local governments from failing. A full understanding of complex mutual interactions between the mechanisms of governance and the behaviors of politicians and managers can provide valuable insights to prevent local governments from failing.

Details

Contingency, Behavioural and Evolutionary Perspectives on Public and Nonprofit Governance
Type: Book
ISBN: 978-1-78560-429-4

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Book part
Publication date: 21 July 2016

Ramkrishnan (Ram) V. Tenkasi and Yehia Kamel

A neglected area of research in ODC is the turnaround of poorly performing firms such as those under bankruptcy protection. We researched 142 companies that attempted…

Abstract

A neglected area of research in ODC is the turnaround of poorly performing firms such as those under bankruptcy protection. We researched 142 companies that attempted reorganization under bankruptcy protection between 1983 and 2003. Firms deployed one or more of four distinct strategies to turnaround: rationalizing existing resources, developing existing resources, generating new resources, and investing in future resources. Firms that generated new resources, and developed and rationalized existing resources, had the highest probability of emergence. Interestingly firms that sustained their turnaround post-emergence invested in future resources in addition to generating, developing, and rationalizing resources. Implications for ODC are discussed.

Details

Research in Organizational Change and Development
Type: Book
ISBN: 978-1-78635-360-3

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Article
Publication date: 24 November 2020

Yu Wu and Calum G. Turvey

The purpose of this paper is to determine the effects of the 2018–2020 China–US trade war on US farm bankruptcies as filed under Chapter 12. The key task is to identify…

Abstract

Purpose

The purpose of this paper is to determine the effects of the 2018–2020 China–US trade war on US farm bankruptcies as filed under Chapter 12. The key task is to identify the economic factors affecting farm bankruptcies generally, and to then control for the trade war impacts including the Market Facilitation Program (MFP), floods, agricultural conditions and the health of agricultural finance leading into the trade war.

Design/methodology/approach

Results were obtained using ordinary least square regression and panel fixed effect model using bankruptcy rates and number as the dependent variable. Independent variables included market effects, credit conditions, yield variation, trade impacts, 2019 flooding, macroeconomic conditions and regional fixed effects. The authors use cubic splines to interpolate annual and quarterly data to a monthly base.

Findings

Based on a fixed effect model, the authors find that all other things being equal the China–USA trade war would have had a significant impact on Chapter 12 farm bankruptcies, increasing the bankruptcy rate by 25.7%. The flooding in 2009 had minor effects of increasing the rate by only 0.05%. The overall impact will, however be substantially lower than the 25.7% because of the MFP. The MFP variables (binary) had mixed effects and its true impact is unknowable at this time; however, the authors also find that a 1% increase in the producer price index decreases bankruptcy rates by 2.62% and farm bankruptcy numbers by 3.70%. Likewise a 1% increase in GDP reduces bankruptcies by 3.25%. These suggest that the MFP program will have likely reduced farm bankruptcies considerably than what would have occurred in their absence. The authors also find that states heavily dependent on trade faced lower market uncertainty. Broader economic factors (net charge-offs of farm loans held by insured commercial banks, US real GDP, the average effective interest rate on nonreal estate farm loans) affect farm bankruptcy.

Research limitations/implications

The authors use monthly bankruptcy statistics, however not all data were available in monthly measures requiring interpolation using cubic spline functions to approximate monthly changes in some variables. Although the MFP had mixed effects in the model, the mid- to longer-term effects may be more impactful. These longer-term effects (and even shorter-term effects through 2020) are complicated by the coronavirus disease 2019 (COVID-19) pandemic, which will require a different identification strategy than that employed in this paper.

Originality/value

The analysis and results of this paper are, to the authors' knowledge, the first to investigate the impact of the China–US trade war on Chapter 12 farm bankruptcy filings. The use of cubic splines in the interpolation of agricultural data is also a technical innovation.

Details

Agricultural Finance Review, vol. 81 no. 3
Type: Research Article
ISSN: 0002-1466

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