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Full-Text Articles in Finance and Financial Management
Insolvency Administration As A Strategic Response To Financial Distress, James Routledge, David Morrison
Insolvency Administration As A Strategic Response To Financial Distress, James Routledge, David Morrison
James Routledge
This study considers whether the strategic decision to enter voluntary administration (VA) rather than to trade the company’s business for a protracted period of declining performance is systematically related to the effective monitoring of management decision-making. Analysis that tests the association between strategic entry into VA and the likelihood that a company will reorganize in VA is also presented. We find about half of the companies in our sample entered VA as a strategic choice. The likelihood of strategic entry to VA increased with the proportion of independent board directors, the existence of an audit committee and a dual CEO/chair …
Facilitating Successful Failures, Michelle M. Harner, Jamie Marincic Griffin
Facilitating Successful Failures, Michelle M. Harner, Jamie Marincic Griffin
Michelle M. Harner
Approximately 80,000 businesses fail each year in the United States. This article presents an original empirical study of over 400 business restructuring professionals focused on a critical, arguably contributing factor to these failures—the conduct of boards of directors and management. Anecdotal evidence suggests that management of distressed companies often bury their heads in the sand until it is too late to remedy the companies’ problems, a phenomenon commonly called “ostrich syndrome.” The data confirm this behavior, show a prevalent use of loss framing, and suggest trends consistent with prospect theory. The article draws on these data and behavioral economics to …
Assessing Solvency For Financially Distressed Companies, James Routledge, Ray Mcnamara
Assessing Solvency For Financially Distressed Companies, James Routledge, Ray Mcnamara
Ray McNamara
This article reviews past and recent authorities that have addressed the definition and application of the solvency test in s 95A of the Corporations Act 2001 (Cth). The discussion highlights that, when faced with financial distress, company directors need to carefully consider the solvency implications of their decisions. To generate cash to pay debts as they become due, directors may attempt to realise company assets, obtain additional secured or unsecured debt finance or reorganise the timing of payments with creditors. The discussion of relevant cases shows that the solvency implications associated with realisation of assets, use of assets as security …
Assessing Solvency For Financially Distressed Companies, James Routledge, Ray Mcnamara
Assessing Solvency For Financially Distressed Companies, James Routledge, Ray Mcnamara
James Routledge
This article reviews past and recent authorities that have addressed the definition and application of the solvency test in s 95A of the Corporations Act 2001 (Cth). The discussion highlights that, when faced with financial distress, company directors need to carefully consider the solvency implications of their decisions. To generate cash to pay debts as they become due, directors may attempt to realise company assets, obtain additional secured or unsecured debt finance or reorganise the timing of payments with creditors. The discussion of relevant cases shows that the solvency implications associated with realisation of assets, use of assets as security …
The Effect Of Changing Firm Characteristics On Capacity To Restructure, James Routledge, David Gadenne
The Effect Of Changing Firm Characteristics On Capacity To Restructure, James Routledge, David Gadenne
James Routledge
This paper examines whether changes in financial characteristics over the time prior to a firm entering insolvency administration will affect its reorganisation prospects. Prior research shows that an insolvent firm’s ability to rectify the mismatch between currently available liquid assets and current financial obligations is critical to the reorganisation outcome. Accordingly, a multivariate analysis of financial characteristics which reflect the firm’s ability to address this mismatch is presented. The results show that changes in operating performance and liquidity prior to a firm entering insolvency administration have a bearing on administration outcomes.