The analysis of the effects of financial distress on the top management in the Republic of Serbia

Abstract

This study aims to examine the effects of financial distress on top management structures, as well as to identify the factors affecting managerial change in the companies that adopted the reorganization plan during bankruptcy proceedings in the Republic of Serbia for the period 2009-2014. Out of 39 companies that adopted the reorganization plan, the top management change was observed in 21 companies after the bankruptcy filing year, or within two years following the reorganization plan adoption. Research results indicate a strong negative correlation between the company's liquidity and the probability of change in top management structures, with the impact of other observed factors not being statistically significant.

Determinant of Financial Ratio Analysis to Financial Distress

“…Profitability shows high scores can give the company signal in good condition and not experience the financial distress. Research conducted in Serbia shows that profitability has a significant effect on the financial distress (Raden, 2015). The results of this study differ from the research that in Indonesia shows that profitability has no significant effect on the financial distress (pure, 2018).…”

Do large firms benefit more from R&D investment?

“…Aside from R&D, factors such as human resources, marketing, and financial leverage might also have an impact on firm performance (Morbey and Reithner, 1990;Erickson and Jacobson, 1992;Chauvin and Hirschey, 1993;Boer, 1994) while financial distress can impact firm management, Radjen (2015). Evidently, ever-rising R&D spending might not result in ever-rising profits.…”

Financial Distress and Managerial Turnover: The Case of the Republic of Serbia

“…Gilson (1989Gilson ( , 1990, Jostarndt and Sautner (2008), Firth et al (2006) document that the likelihood of top management turnover is higher for companies that have lower profitability. Radjen (2015) identifies a strong negative correlation between the company's liquidity and the probability of top management turnover in the case of distressed Serbian companies. In order to avoid multicollinearity, we limited financial performance measures to several accounting indicators.…”

“…The EBITDA margin (EBITDAMARGIN) is calculated as a ratio of EBITDA to sales revenue, whereby EBITDA is defined as the earnings before interest, taxes, depreciation, and amortisation; this indicator was also used by Gilson (1990) and Hotchkiss (1995). As an approximation for a company's liquidity, we used the current ratio (LIQUIDITY); this indicator was used by Radjen (2015). In order to isolate the influence of the decisions made during the bankruptcy period on the turnaround strategies, we have used financial figures stemming from the fiscal year-end prior to bankruptcy filing.…”

“…The objective of the research is to determine factors that influence top management turnover in distressed Serbian companies. The first study in this area of concern for the Republic of Serbia was conducted by Radjen (2015), who examined the influence of financial distress on top management in a sample of 39 large-and medium-sized companies that adopted the reorganisation plan from 2009 to 2014. The research indicated the presence of a strong negative relationship between a company's liquidity and the probability of top management turnover.…”