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Corporate distress, troubled debt restructurings and equity stripping

Corporate distress, troubled debt restructurings and equity stripping The focus on excessive corporate leverage as a key factor influencing bank loan delinquency has come into sharp focus in recent times. However, not much analysis has been undertaken on the factors driving corporate distress in emerging economies. Focusing on India as a case study, the purpose of this paper is to investigate the impact of a particular category of corporate debt restructuring (CDR) proposed by the Indian central bank over the last decade in leading an attempt to address bank loan delinquencies, the authors assess the factors influencing the quantum of restructured debt at the corporate level over the time period 2003–2012.Design/methodology/approachBesides univariate analysis, the authors use logit regression techniques to analyze the factors driving CDR outcomes in India.FindingsThe results suggest that firms that successfully exit the debt restructuring process are more profitable and less levered and spend a longer time in such restructuring. Little net equity enters these restructured firms, while there is some evidence of equity stripping, particularly in firms with greater promoter control.Originality/valueTo the best of our knowledge, this is one of the early studies that employ micro-level data to make a comprehensive assessment of the factors driving CDR for a leading emerging economy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

Corporate distress, troubled debt restructurings and equity stripping

Ghosh, Saibal
South Asian Journal of Business Studies , Volume 8 (1): 22 – Apr 12, 2019
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References (63)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2398-628X
DOI
10.1108/sajbs-05-2018-0059
Publisher site
See Article on Publisher Site

Abstract

The focus on excessive corporate leverage as a key factor influencing bank loan delinquency has come into sharp focus in recent times. However, not much analysis has been undertaken on the factors driving corporate distress in emerging economies. Focusing on India as a case study, the purpose of this paper is to investigate the impact of a particular category of corporate debt restructuring (CDR) proposed by the Indian central bank over the last decade in leading an attempt to address bank loan delinquencies, the authors assess the factors influencing the quantum of restructured debt at the corporate level over the time period 2003–2012.Design/methodology/approachBesides univariate analysis, the authors use logit regression techniques to analyze the factors driving CDR outcomes in India.FindingsThe results suggest that firms that successfully exit the debt restructuring process are more profitable and less levered and spend a longer time in such restructuring. Little net equity enters these restructured firms, while there is some evidence of equity stripping, particularly in firms with greater promoter control.Originality/valueTo the best of our knowledge, this is one of the early studies that employ micro-level data to make a comprehensive assessment of the factors driving CDR for a leading emerging economy.

Journal

South Asian Journal of Business Studies – Emerald Publishing

Published: Apr 12, 2019

Keywords: Corporate strategy; Developing countries; Corporate finance; G33; G34

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