IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v10y2022i7p175-d867142.html
   My bibliography  Save this article

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

Author

Listed:
  • Minhas Akbar

    (Department of Management Sciences, COMSATS University Islamabad, Sahiwal Campus, Sahiwal 57000, Pakistan
    Department of Management, Faculty of Informatics and Management, University of Hradec Králové, Rokitanského 62, 500 03 Hradec Králové, Czech Republic)

  • Ammar Hussain

    (Department of Management Sciences, Government College University Faisalabad, Sahiwal Campus, Sahiwal 57000, Pakistan)

  • Marcela Sokolova

    (Department of Management, Faculty of Informatics and Management, University of Hradec Králové, Rokitanského 62, 500 03 Hradec Králové, Czech Republic)

  • Tanazza Sabahat

    (Department of Management Sciences, COMSATS University Islamabad, Sahiwal Campus, Sahiwal 57000, Pakistan)

Abstract

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.

Suggested Citation

  • Minhas Akbar & Ammar Hussain & Marcela Sokolova & Tanazza Sabahat, 2022. "Financial Distress, Firm Life Cycle, and Corporate Restructuring Decisions: Evidence from Pakistan’s Economy," Economies, MDPI, vol. 10(7), pages 1-12, July.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:7:p:175-:d:867142
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/10/7/175/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/10/7/175/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    2. Tan, Yingxian & Luo, Pengfei, 2021. "The impact of debt restructuring on dynamic investment and financing policies," Economic Modelling, Elsevier, vol. 102(C).
    3. Hasan, Mostafa Monzur & Habib, Ahsan, 2017. "Firm life cycle and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 164-175.
    4. Elena Gregova & Katarina Valaskova & Peter Adamko & Milos Tumpach & Jaroslav Jaros, 2020. "Predicting Financial Distress of Slovak Enterprises: Comparison of Selected Traditional and Learning Algorithms Methods," Sustainability, MDPI, vol. 12(10), pages 1-17, May.
    5. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
    6. Xiaofei Zhang & Longbing Xu, 2021. "Firm life cycle and debt maturity structure: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 937-976, March.
    7. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    8. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    9. Koh, SzeKee & Durand, Robert B. & Dai, Lele & Chang, Millicent, 2015. "Financial distress: Lifecycle and corporate restructuring," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 19-33.
    10. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1994. "The economics of the private placement market(summary of staff study 166)," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 5-6.
    11. Hasan, Mostafa Monzur & Cheung, Adrian (Wai-Kong), 2018. "Organization capital and firm life cycle," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 556-578.
    12. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-653, September.
    13. Birger Wernerfelt, 1985. "The Dynamics of Prices and Market Shares Over the Product Life Cycle," Management Science, INFORMS, vol. 31(8), pages 928-939, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mariska McKenzie & Ben Marx, 2025. "A Post-Mortem of Municipal Audit Action Plans Used to Resolve Financial Distress in South Africa," Sustainability, MDPI, vol. 17(4), pages 1-34, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad Atif & Benjamin Liu & Sivathaasan Nadarajah, 2022. "The effect of corporate environmental, social and governance disclosure on cash holdings: Life‐cycle perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2193-2212, July.
    2. Nguyen-Quynh-Nhu Ngo & Cam-Nguyen Nguyen & Nguyen-Nhu-Ngoc Ngo & Thanh-Khang Nguyen, 2024. "The influence of firm life cycle on firm risk-taking: evidence of Vietnam," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 71(3), pages 691-726, September.
    3. Ahsan Habib & Mostafa Monzur Hasan, 2017. "Firm life cycle, corporate risk-taking and investor sentiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 465-497, June.
    4. Emmanuelle Fortune-Devlaminckx & Josef Haunschmied, 2010. "Diversity of firm’s life cycle adapted from the firm’s technology investment decision," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(4), pages 477-489, December.
    5. Shahzad, Farrukh & Fareed, Zeeshan & Wang, Zhenkun & Shah, Syed Ghulam Meran, 2020. "Do idiosyncratic risk, market risk, and total risk matter during different firm life cycle stages?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    6. Hasan, Mostafa Monzur & Cheung, Adrian (Wai-Kong), 2018. "Organization capital and firm life cycle," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 556-578.
    7. Hasan, Mostafa Monzur & Habib, Ahsan, 2017. "Firm life cycle and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 164-175.
    8. Ilya R. P. Cuypers & Ping-Sheng Koh & Heli Wang, 2016. "Sincerity in Corporate Philanthropy, Stakeholder Perceptions and Firm Value," Organization Science, INFORMS, vol. 27(1), pages 173-188, February.
    9. Bikki Jaggi & Alessandra Allini & Raffaela Casciello & Fiorenza Meucci, 2022. "Firm life cycle stages and earnings management," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1019-1049, October.
    10. Ahsan Akbar & Minhas Akbar & Wenjin Tang & Muhammad Azeem Qureshi, 2019. "Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan," Sustainability, MDPI, vol. 11(3), pages 1-22, January.
    11. Kuo, Chii-Shyan & Li, Ming-Yuan Leon & Yu, Shang-En, 2013. "Non-uniform effects of CEO equity-based compensation on firm performance – An application of a panel threshold regression model," The British Accounting Review, Elsevier, vol. 45(3), pages 203-214.
    12. Chen, Kuan-Hau & Su, Xuan-Qi & Lin, Li-Feng & Shih, Yi-Cheng, 2021. "Profitability of moving-average technical analysis over the firm life cycle: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    13. Habib, Ahsan & Hasan, Mostafa Monzur, 2019. "Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 188-201.
    14. Abigail Allen & Melissa F. Lewis‐Western & Kristen Valentine, 2022. "The Innovation and Reporting Consequences of Financial Regulation for Young Life‐Cycle Firms," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 60(1), pages 45-95, March.
    15. Lalit Manral, 2015. "The demand-side dynamics of entrant heterogeneity," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 401-445, April.
    16. Baljit K. Sidhu & CHUAN YU, 2021. "Direct Method Operating Cash Flow Disclosures: Determinants and Incremental Usefulness," Abacus, Accounting Foundation, University of Sydney, vol. 57(3), pages 421-467, September.
    17. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    18. ElBannan, Mona A., 2021. "On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries," Emerging Markets Review, Elsevier, vol. 47(C).
    19. Muhammad Ramzan & Wee‐Yeap Lau, 2023. "Impact of asset preferences on firm performance over its life cycle: Is agency theory or neo‐classical theory more relevant?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 595-607, January.
    20. Jensen, Richard & Showalter, Dean, 2004. "Strategic debt and patent races," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 887-915, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:10:y:2022:i:7:p:175-:d:867142. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.