What Problem Banks Reveal About Future Financial Distress: Evidence from the Late 2000s Financial Crisis

2011 ◽  
Author(s):  
Charles M. Kahn ◽  
Nikolaos I. Papanikolaou
Keyword(s):  
Financial Crisis ◽  
Financial Distress

Financial distress determinants among SMEs: empirical evidence from Sweden

2020 ◽  
Vol 47 (3) ◽  
pp. 547-560 ◽  
Author(s):  
Darush Yazdanfar ◽  
Peter Öhman
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Binary Logistic Regression ◽  
Data Availability ◽  
Cross Sectional ◽  
Data Set ◽  
Content Type ◽  
The Global Financial Crisis

PurposeThe purpose of this study is to empirically investigate determinants of financial distress among small and medium-sized enterprises (SMEs) during the global financial crisis and post-crisis periods.Design/methodology/approachSeveral statistical methods, including multiple binary logistic regression, were used to analyse a longitudinal cross-sectional panel data set of 3,865 Swedish SMEs operating in five industries over the 2008–2015 period.FindingsThe results suggest that financial distress is influenced by macroeconomic conditions (i.e. the global financial crisis) and, in particular, by various firm-specific characteristics (i.e. performance, financial leverage and financial distress in previous year). However, firm size and industry affiliation have no significant relationship with financial distress.Research limitationsDue to data availability, this study is limited to a sample of Swedish SMEs in five industries covering eight years. Further research could examine the generalizability of these findings by investigating other firms operating in other industries and other countries.Originality/valueThis study is the first to examine determinants of financial distress among SMEs operating in Sweden using data from a large-scale longitudinal cross-sectional database.

Did Bankruptcy Reform Cause Mortgage Defaults to Rise?

2011 ◽  
Vol 3 (4) ◽  
pp. 123-147 ◽  
Author(s):  
Wenli Li ◽  
Michelle J White ◽  
Ning Zhu
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Budget Constraints ◽  
Mortgage Default ◽  
Subprime Mortgage ◽  
Default Rates ◽  
Mortgage Defaults

Homeowners in financial distress can use bankruptcy to avoid defaulting on their mortgages, since filing loosens their budget constraints. But the 2005 bankruptcy reform made bankruptcy less favorable to homeowners and therefore caused mortgage defaults to rise. We test this relationship and find that the reform caused prime and subprime mortgage default rates to rise by 23% and 14%, respectively. Default rates rose even more for homeowners who were particularly negatively affected by the reform. We calculate that bankruptcy reform caused mortgage default rates to rise by one percentage point even before the start of the financial crisis. (JEL D14, G01, G21, K35)

Financial Early Warning System for Risk Detection and Prevention from Financial Crisis

Data Mining ◽  
2013 ◽  
pp. 1559-1590
Author(s):  
Nermin Ozgulbas ◽  
Ali Serhan Koyuncugil
Keyword(s):  
Financial Crisis ◽  
Early Warning ◽  
Financial Distress ◽  
Business Performance ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Warning System ◽  
Chi Square ◽  
Risk Detection ◽  
The Global Financial Crisis

Risk management has become a vital topic for all enterprises especially in financial crisis periods. All enterprises need systems to warn against risks, detect signs and prevent from financial distress. Before the global financial crisis that began 2008, small and medium-sized enterprises (SMEs) have already fought with important financial issues. The global financial crisis and the ensuring flight away from risk have affected SMEs more than larger enterprises When we consider these effects, besides the issues of poor business performance, insufficient information and insufficiencies of managers in finance education, it is clear that early warning systems (EWS) are vital for SMEs for detection risk and prevention from financial crisis. The aim of this study is to develop and present a financial EWS for risk detection via data mining. For this purpose, data of SMEs listed in Istanbul Stock Exchange (ISE) and Chi-Square Automatic Interaction Detector (CHAID) Decision Tree Algorithm were used. By using EWS, we determined the risk profiles and risk signals for risk detection and road maps for risk prevention from financial crisis.

scholarly journals Alternative measures for predicting financial distress in the case of Malaysian Islamic banks: assessing the impact of global financial crisis

2020 ◽  
Vol 11 (9) ◽  
pp. 1827-1845
Author(s):  
Mehmet Asutay ◽  
Jaizah Othman
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Global Financial Crisis ◽  
Islamic Banks ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Explanatory Variables ◽  
Alternative Funding ◽  
The Global Financial Crisis ◽  
The Impact

Purpose The global financial crisis of 2008 still has an impact on the financial systems around the world, for which funding liquidity has been mentioned as one of the main concerns during that period. This study aims to consider the impact of and extent to which the funding structure of Islamic banks along with deposit structure, macroeconomic variables, other bank-specific variables, including alternative funding mix variables (in terms of funding structure measured as financing/deposit ratio), could play a part in explaining the financial conditions and predicting the failures and performances of Islamic banks in the case of Malaysia under the distress created by the global financial crisis. Design/methodology/approach Multivariate logit model was used with a sample including 17 full-fledged Islamic banks in Malaysia for the period from December 2005 to September 2010 by using quarterly data. Findings This study found that the funding mix variable (financing/deposit ratio), the composition of deposits, alternative bank-specific variables and alternative funding mix variables are statistically significant. In contrast, none of the macroeconomic variables is found to have a significant impact on bank liquidity. In the final models, the variables that showed significant performance were selected as explanatory variables. The results of McFadden R-squared for both selected models showed an excellent fit to predict the Islamic banks’ performance. Originality/value This empirical study contributes to the literature in two ways: to the best of the authors’ knowledge, this is the first study to examine the role of the funding structures of Islamic banks in determining their performance; and it also examines the effect of deposit composition (the mudharabah and non-mudharabah deposits) on Islamic banks’ performance.

Does Corporate Debt influence the Firms’ Growth after Global Financial Crisis? Evidence from Malaysian Public Listed Companies

2021 ◽  
Vol 6 (1) ◽  
pp. 94
Author(s):  
Nur Syabihah M.H. ◽  
Yahya M.H. ◽  
Meishan Chua
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Firm Growth ◽  
Global Financial Crisis ◽  
Unobserved Heterogeneity ◽  
Listed Companies ◽  
Order Theory ◽  
Corporate Debt ◽  
Pecking Order Theory ◽  
The Impact

This paper aims to investigate the impact of corporate debt on firm growth in Malaysia post Global Financial Crisis 2007-2008. Using a sample of 334 non-financial public listed companies in Bursa Malaysia from 2009 to 2018, this study finds that corporate debt is positively associated with firm growth. The possible reasons for this are; 1) the underdeveloped equity market in Malaysia that forced the firms to take up more debt as a financing resource and 2) the highly associated cost of issuing shares caused the firms to choose debt over equity, to finance the firms’ growth. The result is robust using the random effects panel regression model which mitigates unobserved heterogeneity. The finding supports the Pecking Order theory. The practical contribution of the study lies in the need for firms to deliberately design the application of debt in order to mitigate the associated cost of financial distress that arises from debt. 

Part 2 Specific Issues of Arbitration in Brazil, 19 Insolvency and Arbitration

2020 ◽  
Author(s):  
Guimaraes Marcio Souza
Keyword(s):  
Financial Crisis ◽  
Dispute Resolution ◽  
Financial Distress ◽  
Bankruptcy Law ◽  
Arbitral Tribunal ◽  
Arbitration Clause ◽  
Economic And Financial Crisis

This chapter addresses the main issues regarding the possibilities of using arbitration in dispute resolution under the Brazilian Bankruptcy Law (BBL). Such possibilities include an insolvent company agreeing to an arbitration clause and the viability of submitting insolvency-related disputes to an arbitral tribunal. The Brazilian insolvency system is regulated by the BBL. In essence, this provides for two kinds of proceedings: judicial restructuring and liquidation. Judicial restructuring proceedings give debtors the opportunity to present a reorganizational plan to their creditors. Debtors will attempt to convince creditors not only of their ability to overcome the temporary economic and financial crisis, but also of their business' feasibility. In some circumstances, the economic and financial distress is so extreme that no means exist to reverse the situation, in which case it is preferable to definitively interrupt the debtor's activities, forcibly eliminating the enterprise from the market and liquidating its assets, in order to pay creditors and prevent the damages inflicted on the community from aggravation by breaching credit reliability. Brazilian liquidation proceeding may be initiated by debtors (voluntary petition) or creditors (involuntary petition).

scholarly journals Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?

2019 ◽  
Vol 12 (2) ◽  
pp. 55 ◽  
Author(s):  
Sumaira Ashraf ◽  
Elisabete G. S. Félix ◽  
Zélia Serrasqueiro
Keyword(s):  
Financial Crisis ◽  
Early Warning ◽  
Financial Distress ◽  
Prediction Accuracy ◽  
Prediction Models ◽  
Warning Signs ◽  
Advanced Stage ◽  
Financial Distress Prediction ◽  
Early Warning Signs ◽  
Distress Prediction

Purpose: This study aims to compare the prediction accuracy of traditional distress prediction models for the firms which are at an early and advanced stage of distress in an emerging market, Pakistan, during 2001–2015. Design/methodology/approach: The methodology involves constructing model scores for financially distressed and stable firms and then comparing the prediction accuracy of the models with the original position. In addition to the testing for the whole sample period, comparison of the accuracy of the distress prediction models before, during, and after the financial crisis was also done. Findings: The results indicate that the three-variable probit model has the highest overall prediction accuracy for our sample, while the Z-score model more accurately predicts insolvency for both types of firms, i.e., those that are at an early stage as well as those that are at an advanced stage of financial distress. Furthermore, the study concludes that the predictive ability of all the traditional financial distress prediction models declines during the period of the financial crisis. Originality/value: An important contribution is the widening of the definition of financially distressed firms to consider the early warning signs related to failure in dividend/bonus declaration, quotation of face value, annual general meeting, and listing fee. Further, the results suggest that there is a need to develop a model by identifying variables which will have a higher impact on the financial distress of firms operating in both developed and developing markets.

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