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Corporate response to distress: evidence from the Asian financial crisis

Mara Faccio () and Rajdeep Sengupta

No 2006-044, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper provides a comprehensive examination of the ways in which companies respond to a country-wide crisis through the restructuring of their assets (through asset sales, mergers or liquidations) or liabilities. We find the restructuring of liabilities to be the most common type of response. On the other hand, we argue that firms may be reluctant to engage in major asset sales due to substantial price discounts that need to be applied to these transactions during the crisis. In fact, we document that transaction multiples dropped by 40% during the crisis, compared to a pre-crisis period. We contrast financial and corporate governance considerations and find strong support for the notion that, during a crisis, financial constraints have a large impact on the restructuring choice. However, we find corporate governance (e.g., control) considerations to matter only marginally both in statistical and economic terms.

Keywords: Financial crises - Asia; Corporate governance (search for similar items in EconPapers)
Date: 2006, Revised 2006
New Economics Papers: this item is included in nep-fmk and nep-sea
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Journal Article: Corporate response to distress: evidence from the Asian financial crisis (2011) Downloads
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