Financial Distress, Firm Life Cycle, and Corporate Restructuring Decisions: Evidence from Pakistan’s Economy

This study examines the influence of financial distress on corporate restructuring decisions and whether this restructuring varies across the Firm Life Cycle (FLC) stages of Pakistani non-financial listed firms for the 12 years from 2005 to 2016 inclusive. FLC stages and financial distress are measu...

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Bibliographic Details
Published in:Economies 2022-07, Vol.10 (7), p.175
Main Authors: Akbar, Minhas, Hussain, Ammar, Sokolova, Marcela, Sabahat, Tanazza
Format: Article
Language:English
Subjects:
Analysis
Bankruptcy
Business cycles
Corporate reorganizations
corporate restructuring
Debt financing
Debt financing (Corporations)
Debt restructuring
Decision making
Economic development
Emerging markets
Equity financing
Equity funds
External debt relief
financial distress
firm life cycle
GDP
Gross Domestic Product
Investments
logistic regression
Market positioning
Pakistan
Profitability
Profits
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Summary:This study examines the influence of financial distress on corporate restructuring decisions and whether this restructuring varies across the Firm Life Cycle (FLC) stages of Pakistani non-financial listed firms for the 12 years from 2005 to 2016 inclusive. FLC stages and financial distress are measured using the Dickinson model and Altman Z-score, respectively. Corporate restructuring is segregated into equity and debt restructuring. The data are analyzed using a panel logistic regression model. The results reveal that financial distress is negatively associated with corporate debt restructuring decisions and positively associated with corporate equity restructuring decisions. Further analysis shows that new, growing and mature firms have positive associations with equity restructuring decisions and negative associations with debt restructuring decisions, while declining firms prefer debt restructuring. This study has important implications for corporate managers and policy makers.
ISSN:2227-7099
2227-7099
DOI:10.3390/economies10070175