Resolution To Financial Distress And Property Rights

At present,the world is in the post financial crisis era,with the acceleration of globalization and the increase of systematic risk,more and more companies are under financial distress.How to deal with financial distress has become a difficult problem for Chinese companies,and it also become a hot issue in theoretical research for Chinese and foreign scholars.On the other hand,ownership nature plays an important role in dealing with financial distress,it leads to many differences between state-owned enterprises and private enterprises in the path,cost and effect.In this context,this paper summarizes the previous studies,and analyzes two Chinese enterprises in financial distress:Baoding Tianwei Baobian Electric Co.Ltd and Li Ning Company Ltd based on the theoretical framework of S.Sudarsanam,J.Lai(2001)and Tang(2015).TheBaobian Electric is state-owned enterprise and Li Ning is private enterprise.We discuss the reason why they are under financial distress,their resolution to distress,the cost and effect of resolution.We also make comparative studies on two companies and try to analyze and explain the difference between two companies from ownership nature standpoint.Specifically,this paper analyzes the entering path through economic environment and company management;and we conclude the resolution by corporate governance restruction,strategic and operational restruction,asset restricting and financial restruction,and we also evaluate the cost through financial cost and the management restruction cost.In the end we assess the result of resolution by market reaction and financial performance.The result if our research shows that:(1)The financial distress is caused by deterioration of macro-economy and industry,mistakes on management decision.(2)The resolution to financial distress is a systematic and comprehensive project.(3)The property nature have a great impact on resolution to the financial distress.State-owned enterprises make related transactions to make short run effect while private companies prefer to restruct the management strategy and company structure.In the area of resolution cost,we find that state enterprises is at a lower expense than private business for lower interest loan and bond and the policy support.On the other side,private ownership have more positive market reaction than state ownership,the private enterprises also have better performance on financial statements.The results of this paper could help Chinese enterprises to improve the management ability to have a better chance to escape and avoid the financial distress.