Top

Published in:

2016 | OriginalPaper | Chapter

49. Indirect Financial Distress Costs: Evidence from Trading and Services Sector

Authors : Norhisam Bulot, Norhana Salamudin, Wan Mohd Yaseer Mohd Abdoh, Noor Hafizha Muhamad Yusuf, Hasyeilla Abd Mutallib

Published in: Proceedings of the 1st AAGBS International Conference on Business Management 2014 (AiCoBM 2014)

Publisher: Springer Singapore

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

The aim of this paper is to provide a quantitative estimate of the indirect financial distress costs. This paper focuses on the Malaysian trading and services sector and concentrates only on measuring the financial distress costs in terms of changes in operating performance and changes in capital values. This study will contribute to the existing literature by providing an alternative proxy for indirect financial distress costs and perhaps the first paper to provide the quantitative estimate of the costs for Malaysia’s financially distressed firms. Findings from our study suggest that indirect costs exist and are found to be between 3.1 and 21.39 %. In addition to that, this paper also provides an empirical support that the indirect financial distress costs increase and become apparent as the firms near financial distress.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Bank Fragility and Its Determinants: Evidence From Malaysian Commercial Banks

next chapter Determinants of Indirect Financial Distress Costs

Warner JB (1977) Bankruptcy costs: some evidence. J Financ 32(2):337–347CrossRef

Elali W, Trainor T (2008) Advanced corporate finance: a practical approach, 1st edn. Pearson Education, Canada

Opler TC (1993) Controlling financial distress costs in leveraged buyouts with financial innovations. Financ Manag 22(3):79–90CrossRef

Altman EI (1984) A further empirical investigation of the bankruptcy cost question. J Financ 39(4):1067–1089CrossRef

Altman EI, Hotchkiss E (2010) Corporate financial distress and bankruptcy: predict and avoid bankruptcy, analyze and invest in distressed debt, vol 289. John Wiley & Sons, United States

Lang L, Poulsen A, Stulz R (1995) Asset sales, firm performance, and the agency costs of managerial discretion. J Financ Econ 37(1):3–37CrossRef

Sanz LJ, Ayca J (2006) Financial distress costs in Latin America: a case study. J Bus Res 59(3):394–395CrossRef

Scherr FC (1983) Some evidence on asset liquidation losses: the case of WT grant. Nebraska J Econ Bus 22(3):3–23

Bisogno M, De Luca R (2012) Indirect costs of bankruptcy: evidence from Italian SMEs. J Account Financ 2(1):20–30

10.

Branch B (2002) The costs of bankruptcy: a review. Int Rev Financial Anal 11(1):39–57CrossRef

11.

Cutler DM, Summers LH (1989) The costs of conflict resolution and financial distress: evidence from the Texaco-Pennzoil litigation. National Bureau of Economic Research, Cambridge, MA

12.

Wijantini (2007) The indirect costs of financial distress in Indonesia. Gadjah Mada Int J Bus 41(4):307–305

13.

Singhal R (2003) Indirect bankruptcy costs, in David Eccles School of Business. David Eccles School of Business, University of Utah, USA

14.

Pindado J, Rodrigues L, De La Torre C (2008) Estimating financial distress likelihood. J Bus Res 61(9):995–1003CrossRef

15.

Singhal R, Zhu YE (2013) Bankruptcy risk, costs and corporate diversification. J Bank Financ 37:1475–1489CrossRef

16.

Ahmed HJA, Hisham N (2009) Revisiting capital structure theory: a test of pecking order and static order trade-off model from Malaysian capital market. Int Res J Financ Econ 30:58–65

17.

Hamid MA et al (2009) Determinants of corporate demand for Islamic insurance in Malaysia. Int J Econ Manag 3(2):278–296

18.

Ertugrul M, Sezer Ö, Sirmans C (2008) Financial leverage, CEO compensation, and corporate hedging: evidence from real estate investment trusts. J Real Estate Financ Econ 36(1):53–80CrossRef

19.

Judge A (2004) The determinants of foreign currency hedging by UK non-financial firms. Working paper, Middlesex University

20.

Molina CA, Preve LA (2009) Trade receivables policy of distressed firms and its effect on the costs of financial distress. Financ Manag 38(3):663–686CrossRef

21.

Nor FM et al (2012) Practices of capital structure decisions: Malaysia survey evidence. Int Rev Bus Res Pap 8(1):33–63

22.

Tshitangano F (2010) Cost of financial distress model for JSE listed companies: a case of South Africa, in Gordon Institute of Business Science University of Pretoria, South Africa

23.

White MJ (1983) Bankruptcy costs and the new bankruptcy code. J Financ 38(2):477–488CrossRef

24.

Andrade G, Kaplan SN (1998) How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed. J Financ 53(5):1443–1493CrossRef

25.

Chin NS (2005) Prediction of corporate failure: a study of the Malaysian corporate sector. Multimedia University, Malaysia

26.

Hamid MA (2010) Financial expositions of corporate determinants for conventional insurance: evidence from Malaysian firms. Int Res J Financ Econ 43:80–93

27.

Ameer R (2010) Determinants of corporate hedging practices in Malaysia. Int Bus Res 3(2):120–120CrossRef

28.

Outecheva N (2007) Corporate financial distress: an empirical analysis of distress risk. University of St. Gallen, Switzerland

29.

Chen G (1995) An empirical examination of the indirect costs of financial distress. University of Texas, Dallas, p 134

30.

Titman S (1984) The effect of capital structure on a firm’s liquidation decision. J Financ Econ 13(1):137–151CrossRef

31.

Almeida H, Philippon T (2007) The risk-adjusted cost of financial distress. J Financ 62(6):2557–2586CrossRef

32.

Bris A, Welch I, Zhu N (2006) The costs of bankruptcy: chapter 7 liquidation versus chapter 11 reorganization. J Financ 61(3):1253–1303CrossRef

33.

Carapeto M (2000) Is bargaining in chapter 11 costly (unpublished manuscript, Cass Business School, London)

34.

Denis DJ, Denis DK (1995) Performance changes following top management dismissals. J Financ 50(4):1029–1057CrossRef

35.

Eberhart AC, Moore WT, Roenfeldt RL (1990) Security pricing and deviations from the absolute priority rule in bankruptcy proceedings. J Financ 45(5):1457–1469CrossRef

36.

Farooq U, Nazir MS (2012) An analysis of operating and financial distress in Pakistani firms. Elixir Financ 44(2012):7133–7137

37.

Gilson SC, John K, Lang LHP (1990) Troubled debt restructurings: an empirical study of private reorganization of firms in default. J Financ Econ 27(2):315–353CrossRef

38.

Pham T, Chow D (1989) Some estimates of direct and indirect bankruptcy costs in Australia: September 1978–May 1983. Aust J Manag 14(1):75–75CrossRef

39.

Pulvino TC (1999) Effects of bankruptcy court protection on asset sales. J Financ Econ 52(2):151–186CrossRef

40.

Yen G, Li JF (2010) Financial distress announcements, transaction mode change, and aggregate shareholder wealth: Empirical evidence from TAIEX-listed companies. Rev Pac Basin Financ Mark Policies 13(1):19–43CrossRef

41.

Yen G, Yen EC (2008) Estimates of financial distress costs revisited: Evidence from TSE-Listed firms. Atlantic Econ J 36(1):121–122CrossRef

42.

Shleifer A, Vishny RW (1992) Liquidation values and debt capacity: a market equilibrium approach. J Financ 47(4):1343–1366CrossRef

43.

Pindado J, Rodrigues L (2005) Determinants of financial distress costs. Fin Mkts Portfolio Mgmt 19(4):343–359CrossRef

44.

Berger PG, Ofek E (1995) Diversification’s effect on firm value. J Financ Econ 37:39–65CrossRef

45.

Wruck KH (1990) Financial distress, reorganization, and organizational efficiency. J Financ Econ 27(2):419–444CrossRef

Title: Indirect Financial Distress Costs: Evidence from Trading and Services Sector
Authors: Norhisam Bulot
Norhana Salamudin
Wan Mohd Yaseer Mohd Abdoh
Noor Hafizha Muhamad Yusuf
Hasyeilla Abd Mutallib
Publisher: Springer Singapore
Book: Proceedings of the 1st AAGBS International Conference on Business Management 2014 (AiCoBM 2014)
Print ISBN: 978-981-287-425-2

Electronic ISBN: 978-981-287-426-9

Copyright Year: 2016
DOI: https://doi.org/10.1007/978-981-287-426-9_49