A Study On The Choices Concerned With Bankruptcy Of Listed Companies In China And Their Effects

It is always a difficult problem in Chinese securities market that a listed company goes bankrupt. As a result of the flaw in system, there are a great number of listed companies in the state of financial bankruptcy but it is difficult for them to go bankrupt. They can only carry out debt restructuring, or go delisting to keep still in a life and death dilemma. With the promulgation of New "Enterprise Bankruptcy Law" in 2006, these companies and their stakeholders have more choices: the choice of filing Bankruptcy or not, the choice of the timing of filing, the choice of the bankruptcy proceedings (Reconciliation, Liquidation, and Reorganization) etc. Different choices will bring different consequences. If the wrong choices are made, it may make efficient firms that are worth saving miss the best saving time or be liquidated. It may also make inefficient firms that are not worth saving be reorganized so that Bankruptcy Reorganization would be a tactics means for avoiding debt. All these may further damage the shareholders and creditors'interests, lead to a huge waste of resources, make allocation of resources inefficiency, and cause the stock market'functions of optimization disposition of resources malfunction.It's still new for a listed company to go bankrupt. Relevant system is still imperfect. It is badly in need of guiding when a listed company is doing the bankruptcy options. However, there are few systematic and deep researches on this topic in the domestic academic circles. The contradiction between the infinite expanse of the practical need and the lack of relevant theories hinders the further improvement of the effects of bankruptcy of the listed companies in bankrupt state. Therefore, this dissertation attempts to solve the problem.In this dissertation, I probe into the bankruptcy choices of the listed companies in bankrupt state from the perspective of the management of listed companies. In view of the fact that the vast majority of Chinese listed companies came from state-owned enterprises, the issues involved in the research mainly focus on state-owned listed companies, while listed companies of the other types are not concerned.There are seven chapters in this dissertation.Chapter 1, as an introduction, covers the background, objective, literatures, content and approaches of the research.Chapter 2 is about the conceptual framework of the study on the choices concerned with bankruptcy of listed companies in China. Firstly, I compare the definitions of major terms involved including Bankruptcy, Financial Distress and Delisting etc. Based on the comparative analysis, I propose the object of study: Quasi-bankruptcy Listed Companies and gives its definition. Secondly, I compare the outlets of Quasi-bankruptcy Listed Companies. The choosing presupposition, the choosing subject, the choosing motive, the choosing efficiency on bankruptcy of Quasi-bankruptcy Listed Companies are discussed, which offers theoretical basis for the research in the subsequent chapters of this dissertation.Chapter 3 is about the choice of the timing of bankruptcy filing. It includes two parts. One is the choice of filing Bankruptcy or not. The other is the choice of the timing of filing. The former is Whether or not filed Bankruptcy Reorganization. The choice is based on the balance of costs and benefits. I analyze the difference between Bankruptcy Reorganization and Private Workout in five aspects: negotiations cost, agent cost, information disclosure cost, bankrupt cost, factors of listed companies themselves. Then the issues about whether to file Bankruptcy Reorganization for Quasi-bankruptcy Listed Companies in China are studied. Then I discuss the choice of timing of filing Bankruptcy on three parts: the way of choice, the influencing factor, and China's realistic situation.Chapter 4 is about the choice of the bankruptcy proceedings. I discuss it as follows: the theoretical model and judgment basis of alternative of bankruptcy proceedings, realistic contradiction in bankruptcy proceedings selection, gambling analysis in bankruptcy proceedings selection. I argue that when listed companies entered into bankruptcy proceedings, they are confronted with Liquidation/Reconciliation and Reorganization options. This kind of choice is actually the option of continuing to exist or going into liquidation for listed companies and there are a lot of conflicts of interests and controlling right in it, and the ultimate decision lies in the choice of the creditors and the court's ruling.Having structured the judge decision-making model for the bankruptcy proceedings choosing, I point out that judgment basis for a listed company to continue or go into liquidation are the economic efficiency. But there exists the difficult problem of value assessment in the economic efficiency judgment. I propose a scheme for solving this difficult problem on the value assessment after analyzing the limitation of available value assessment method for Reorganization firms in Bankruptcy Procedure.Chapter 5 is about the effects of the existing choices of bankruptcy proceedings. First, I give descriptive statistics to the 18 sample listed companies sued by the creditors to repay debt. Second, I examine the efficiency of Bankruptcy Reorganization by ways of Event-study and Financial Indicators Analysis. Finally, with the study of ST "shengfang" Bankruptcy Reconciliation case, I examine the effect of Bankruptcy Reconciliation.The empirical result shows that all the Reorganization or Reconciliation methods are not ideal except lending-the-hull method. There are a lot of listed companies with no saving value to be reorganized and repeated restructuring, cause the tremendous waste of social resources, so we draw the conclusion that the choice on bankruptcy proceedings for listed companies is inefficient in China. In the present situation, we ought to strengthen the position of liquidation in the bankruptcy law and avoid the phenomena that bad firms shift the burden of debt by filing Bankruptcy Reorganization.Chapter 6 is the empirical study of the effects of filing bankruptcy or not. I positively examine the market reaction to the bankrupt announcement of the bankruptcy firms by ways of Event-study. I also examine operation performance and market performance of listed companies who delay to file bankruptcy by comparative analysis of the financial data. The aim is to provide help for Quasi-bankruptcy Listed Companies to make decision for filing Bankruptcy Reorganization. The results show that the bankruptcy announcement brings positive effect, market performance of quasi-bankruptcy listed companies is higher than its corresponding sample, but the operating performance is still no improvement, and the companies are still in a de facto state of insolvency. This contradictory phenomenon exists mainly because Chinese Stock Market is not standardized, and the investors are extremely speculative. That makes Quasi-bankruptcy Listed Companies become popular and a favorite topic of speculation. Therefore, in the present situation, when Quasi-bankruptcy Listed Companies are in the choice of whether filing bankruptcy or not, on the one hand, it is unnecessary to worry about their stock price would fall by filing Bankruptcy Reorganization. They should initiate Bankruptcy Reorganization proceeding timely and should not arbitrarily delay or they will lose the optimal opportunity to save themselves. On the other hand, delaying to file Bankruptcy Reorganization or Carrying on Private Workout does not play the retrieval role. Filing Bankruptcy timely is possibly their best outlet.Chapter 7 includes conclusions and suggestions.My dissertation would contribute to academic literatures well as suggestions for industries as follows:The first one is of the content innovation. Most of the available documents studied the distressed listed companies from such area as the forewarning system of financial distress; the reasons for financial distress, the asset reorganization. There are few deep theoretical researches on the outlet and the bankruptcy choices of distressed listed companies. In this dissertation, I carry out comparatively comprehensive researches on the behaviors and the effects of Quasi-bankrupt Listed Companies on bankruptcy choices. It covers two aspects: the timing of bankruptcy filing, the bankruptcy proceedings. To some degree, the dissertation makes up the blank of this research field, offering a theoretical foundation and the countermeasures for Chinese Quasi-bankrupt Listed Companies in bankruptcy choices.The second one is that my proposition on the controlling power of China's listed companies, which is in the hands of internal management as a deduction of the stockholders'structure and of China's listed companies. Management's choice of bankrupt strategy is mainly based on the maximization of their personal interest. Therefore, I argues that the management of listed companies in China generally are reluctant to choose bankruptcy and have the tendency to delay bankruptcy filing for their revenue of control right. And then puts forward specific recommendations on policies. This is still relatively new in China.The third one is my examinations of the efficiency of Bankruptcy Reorganization by the approaches of Event-study and Financial Indicators Analysis. The empirical result shows that all the Reorganization methods are not ideal except lending-the-hull method. There are many listed companies to be repeatedly reorganized and ultimately to go delisting. Therefore, I put forward the proposal that the suitable filtration procedure should be established at present to carry on"the protection"on distress listed companies moderately to avoid the phenomena that bad firms shift the burden of debt by filing Bankruptcy Reorganizations in China. It is a contribution to the policy making in some sense.The fourth one is that I analyze the efficiency of Reorganization and Reconciliation by lending-the-hull method from both microscopic and macroscopic aspects, namely that is the efficiency of Reorganization and Reconciliation should be inspected not only from the individual by examining whether the outcome of the Bankruptcy Reorganization (Reconciliation) enhances the efficiency of the enterprises themselves, but also from the social efficiency by checking whether the bankruptcy allocates the resources to investors and managers who can use it in maximum efficiency. Then I draw the conclusion that Reorganization or Reconciliation by lending-the-hull method is the better outlet for the listed companies that are not worth saving in the situation of"shell"resources is scarcity now, for Reorganization or Reconciliation by lending-the-hull method both has the individual efficiency and the social efficiency. Regarding to the listed companies that are not worth saving are unable to sell"the shell", the Bankrupt Liquidation is probably the most efficient outlet. This has certain instructions to the implementation of the present Bankruptcy Reorganization system.The fifth one is that I carry out tentative examination on the market reaction to the bankruptcy declaration of Chinese listed companies. The results show that the bankruptcy announcement brings positive effects that are contrary to overseas research conclusion. This has provided a new perspective and an evidence for the theoretical researches on financial distress.