Factors Affecting Bankruptcy in Malaysian Listed Companies

  • Authors

    • Zoe Patricia
    • Suganthi R
    • Devinaga R
    • Yuen Yeen Yen
    • Shalini .
    2018-08-08
    https://doi.org/10.14419/ijet.v7i3.21.17110
  • Bankruptcy, corporate institutions, corporate Governance, size, profitability, leverage and liquidity
  • In a number of studies bankruptcy has been known to bring about the downfall and embarrassment of firms as well as destroying a lot of careers. On the other hand for bankruptcy of corporate institutions, factors such as accounting aspects that include, profitability, leverage as well as liquidity are mainly the core of this issue as mentioned by Boettcher, Cavanagh, and Xu (1). Nowadays corporate governance has been added into the mix. In order to support both affected and smoothly running firms, it is crucial for researchers to investigate all the aspects of the management of the firm as expressed in their annual reports. The methods focused on in this research includes the models such as, multicollinearity, polled least square model and finally the fixed effect model. The annual reports and indexes were used to get values in the measurements. This study found that corporate governance, firm size and profitability were not significant to the bankruptcy of the firm. However, Liquidity and leverage contributed to firm bankruptcy.  In conclusion, this study is generally meant to explore the impact of different factors that probably contributed to bankruptcy among Malaysian firms.

     

     
  • References

    1. [1] Boettcher J, Cavanagh G, Xu M. Ethical Issues that arise in Bankruptcy. Business and Society Review. 2014;119(4):473-96.

      [2] Al-Kassar TA, Soileau JS. Financial performance evaluation and bankruptcy prediction (failure) 1. Arab Economic and Business Journal. 2014;9(2):147-55.

      [3] Peat M. Factors affecting the probability of bankruptcy: A managerial decision based approach. Abacus. 2007;43(3):303-24.

      [4] Elshahat I, Elshahat A, Rao A. Does Corporate Governance Improve Bankruptcy Prediction? Academy of Accounting and Financial Studies Journal. 2015;19(1):107.

      [5] Daily CM. Governance patterns in bankruptcy reorganizations. Strategic Management Journal. 1996:355-75.

      [6] De Maere J, Jorissen A, Uhlaner LM. Board capital and the downward spiral: Antecedents of bankruptcy in a sample of unlisted firms. Corporate Governance: An International Review. 2014;22(5):387-407.

      [7] Liang D, Lu C-C, Tsai C-F, Shih G-A. Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research. 2016;252(2):561-72.

      [8] Manzaneque M, Priego AM, Merino E. Corporate governance effect on financial distress likelihood: Evidence from Spain. Revista de Contabilidad. 2016;19(1):111-21.

      [9] Akbar S, Poletti-Hughes J, El-Faitouri R, Shah SZA. More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation. Research in International Business and Finance. 2016;38:417-29.

      [10] Chan C-Y, Chou D-W, Lin J-R, Liu F-Y. The role of corporate governance in forecasting bankruptcy: Pre-and post-SOX enactment. The North American Journal of Economics and Finance. 2016;35:166-88.

      [11] Fich EM, Slezak SL. Can corporate governance save distressed firms from bankruptcy? An empirical analysis. Review of Quantitative Finance and Accounting. 2008;30(2):225-51.

      [12] Rauterkus A, Rauterkus S, Munchus G. Effect of board composition on firm bankruptcy: An empirical study of United States firms. International Journal of Management. 2013;30(2):767.

      [13] White MJ. The corporate bankruptcy decision. The Journal of Economic Perspectives. 1989;3(2):129-51.

      [14] Bonnier K-A, Bruner RF. An analysis of stock price reaction to management change in distressed firms. Journal of Accounting and Economics. 1989;11(1):95-106.

      [15] Amedzro St-Hilaire WG. Regulation and corporate governance. Role of deficiencies of boards in the bankruptcy of industrial and commercial crown corporations. Revue Sciences de Gestion. 2011(80).

      [16] Al-Musali MAKM, Ku Ismail KNI. Board diversity and intellectual capital performance: The moderating role of the effectiveness of board meetings. Accounting Research Journal. 2015;28(3):268-83.

      [17] Ong ML, Cheang WC, Tsen EJY, Low HC, Ng HS. Factors of consumer bankruptcy: A case study in the United States: UTAR; 2015.

      [18] Maher M, Andersson T. Corporate governance: effects on firm performance and economic growth. 2000.

      [19] Daily CM, Dalton DR. Corporate governance and the bankrupt firm: An empirical assessment. Strategic Management Journal. 1994;15(8):643-54.

      [20] Shamsudin A, Kamaluddin A. Impending Bankruptcy: Examining Cash Flow Pattern of Distress and Healthy Firms. Procedia Economics and Finance. 2015;31:766-74.

      [21] Nahar Abdullah S. Board structure and ownership in Malaysia: The case of distressed listed companies. Corporate Governance: The international journal of business in society. 2006;6(5):582-94.

      [22] Noordin N, Zakaria Z, Sawal MZHM, Ngah K, Hussin ZH. Bankruptcy among young executives in Malaysia. Insight. 2012;28:132-6.

      [23] Darrat AF, Gray S, Park JC, Wu Y. Corporate governance and bankruptcy risk. Journal of Accounting, Auditing & Finance. 2016;31(2):163-202.

      [24] Adams RB, Ferreira D. Women in the boardroom and their impact on governance and performance. Journal of financial economics. 2009;94(2):291-309.

      [25] Triqueiros D, editor A Theoretical Definition and Statistical Description of Firm Size. Annual Conference of the British Accounting Association; 2000.

      [26] Wijn MFCM, Bijnen EJ. Firm size and bankruptcy elasticity. Tilburg University, School of Economics and Management, 2001.

      [27] Kim S-J. Corporate leverage, bankruptcy, and output adjustment in post-crisis East Asia. 1999.

      [28] González VM, González F. Firm size and capital structure: evidence using dynamic panel data. Applied Economics. 2012;44(36):4745-54.

      [29] Chen L-J, Chen S-Y. The influence of profitability on firm value with capital structure as the mediator and firm size and industry as moderators. Investment Management and Financial Innovations. 2011;8(3):121-9.

      [30] Ni J, Kwak W, Cheng X, Gong G. The determinants of bankruptcy for Chinese firms. Review of Pacific Basin Financial Markets and Policies. 2014;17(02):1450012.

      [31] Pettengill GN, Lander DM. Response of the Cost of Equity to Leverage: An Alternative Perspective. Journal of Business Strategies. 2015;32(2):110.

      [32] LoPucki LM. The Debtor in Full Control--Systems Failure Under Chapter 11 of the Bankruptcy Code. Am Bankr LJ. 1983;57:99.

      [33] Daily CM, Dalton DR. Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management journal. 1994;37(6):1603-17.

      [34] Campbell SV. Predicting bankruptcy reorganization for closely held firms. Accounting Horizons. 1996;10(3):12.

      [35] Altman EI. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The journal of finance. 1968;23(4):589-609.

      [36] Soloski J. Collapse of the US newspaper industry: Goodwill, leverage and bankruptcy. Journalism. 2013;14(3):309-29.

      [37] Tian S, Yu Y, Guo H. Variable selection and corporate bankruptcy forecasts. Journal of Banking & Finance. 2015;52:89-100.

      [38] George TJ, Hwang C-Y. A resolution of the distress risk and leverage puzzles in the cross section of stock returns. Journal of Financial Economics. 2010;96(1):56-79.

      [39] Diamond DW. Debt maturity structure and liquidity risk. The Quarterly Journal of Economics. 1991;106(3):709-37.

      [40] Bryan DM, Tiras SL, Wheatley CM. The interaction of solvency with liquidity and its association with bankruptcy emergence. Journal of Business Finance & Accounting. 2002;29(7â€8):935-65.

      [41] Wu Y, Gaunt C, Gray S. A comparison of alternative bankruptcy prediction models. Journal of Contemporary Accounting & Economics. 2010;6(1):34-45.

      [42] Karas M, Režňáková M. Bankruptcy prediction model of industrial enterprises in the Czech Republic. International journal of mathematical models and methods in applied sciences. 2013;7(5):519-31.

      [43] Teodor H, Maria AT. Aspects Concerning The Determination Of Bankruptcy Risk By Solvency And Liquidity Ratios In The Companies Listed On The Bucharest Stock Exchange. THE ANNALS OF THE UNIVERSITY OF ORADEA. 2014:630.

      [44] Jan A, Marimuthu M. Bankruptcy and sustainability: A conceptual review on islamic banking industry. Global Business and Management Research. 2015;7(1):109.

      [45] Jovanovic B. Selection and the Evolution of Industry. Econometrica: Journal of the Econometric Society. 1982:649-70.

      [46] Farinas JC, Moreno L. Firms' growth, size and age: a nonparametric approach. Review of Industrial organization. 2000;17(3):249-65.

      [47] Lennox CS. The accuracy and incremental information content of audit reports in predicting bankruptcy. Journal of Business Finance & Accounting. 1999;26(5â€6):757-78.

      [48] Beaver WH, McNichols MF, Rhie J-W. Have financial statements become less informative? Evidence from the ability of financial ratios to predict bankruptcy. Review of Accounting studies. 2005;10(1):93-122.

      [49] Abor J. The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. The journal of risk finance. 2005;6(5):438-45.

      [50] Kraus A, Litzenberger RH. A stateâ€preference model of optimal financial leverage. The journal of finance. 1973;28(4):911-22.

      [51] Miller BH. Sovereign bankruptcy: examining the United States bankruptcy system as a forum for sovereign debtors. Law & Pol'y Int'l Bus. 1991;22:107.

      [52] Bongini P, Ferri G, Hahm H. Corporate bankruptcy in Korea: Only the strong survive? Financial Review. 2000;35(4):31-50.

      [53] John TA. Accounting measures of corporate liquidity, leverage, and costs of financial distress. Financial Management. 1993:91-100.

      [54] Barniv R, Mehrez A, Kline DM. Confidence intervals for controlling the probability of bankruptcy. Omega. 2000;28(5):555-65.

      [55] Yermack D. Higher market valuation of companies with a small board of directors. Journal of financial economics. 1996;40(2):185-211.

      [56] Eisenberg T, Sundgren S, Wells MT. Larger board size and decreasing firm value in small firms. Journal of financial economics. 1998;48(1):35-54.

      [57] Weiss LA. Bankruptcy resolution: Direct costs and violation of priority of claims. Journal of Financial Economics. 1990;27(2):285-314.

      [58] Beck T. Financial and legal institutions and firm size: World Bank Publications; 2003.

  • Downloads

  • How to Cite

    Patricia, Z., R, S., R, D., Yeen Yen, Y., & ., S. (2018). Factors Affecting Bankruptcy in Malaysian Listed Companies. International Journal of Engineering & Technology, 7(3.21), 139-146. https://doi.org/10.14419/ijet.v7i3.21.17110