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

Minhas Akbar, Ammar Hussain, Marcela Sokolova and Tanazza Sabahat
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Minhas Akbar: Department of Management Sciences, COMSATS University Islamabad, Sahiwal Campus, Sahiwal 57000, Pakistan
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

Economies, 2022, vol. 10, issue 7, 1-12

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.

Keywords: financial distress; corporate restructuring; firm life cycle; logistic regression; Pakistan (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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