Resolution of corporate distress in East Asia

Abstract The financial crisis in East Asia in 1997–1998 led to financial distress of firms with different financial and ownership structures and happened across countries with very diverse institutional setups. Studying this event allows the identification of factors that determine the use of bankruptcy as a means of resolving corporate financial distress. Of a sample of 1472 publicly traded firms in five East Asian countries, we identify 644 firms as financially distressed. Of these, 83 filed for bankruptcy during 1997–1998. We find, controlling for some firm characteristics, that the likelihood of filing is lower for bank-owned and group-affiliated firms. Furthermore, we find that stronger creditor rights and a better judicial system in the country increase the likelihood of bankruptcy filing.

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