To live or let die? An empirical analysis of piecemeal voluntary corporate liquidations

Erwin, Gayle R.

doi:10.1016/s0929-1199(97)00003-5

Cited by 12 publications

(3 citation statements)

References 16 publications

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“…Exit by dissolution may take place in two different waysvoluntary liquidation and bankruptcy (Balcaen et al 2011). The former happens out of court and is preferred when cash reserves are significant and the leverage is low (Erwin and McConnell 1997). Bankruptcy on the other hand is an in-court procedure that involves higher transaction costs, and often takes place when the company has a high level of secured debt (Balcaen et al 2011).…”

Section: Two Different Stylized Facts On the Process Of Exit Of Firmsmentioning

confidence: 99%

Time to exit: “revolving door effect” or “Schumpeterian gale of creative destruction”?

et al. 2020

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Over the past decades, exit has been analyzed at the theoretical and empirical levels. From this rich series of contributions, two basic patterns of exit can be identified: the revolving door and the gale of creative destruction. In the first, the liability of newness plays a major role in the exit process, while in the second the displacement of non-innovators is the driver of exit. We have tested these two patterns of exit on the population of Dutch firms that exited in 2018. We find confirmation that the two patterns characterize different types of industries. In industries in which innovation does not play a major role, the revolving door effect is the typical pattern and exit is concentrated among the adolescent firms. These firms are also small in size. On the contrary, in industries in which innovation plays a role, exit takes place both among infant as well as mature firms. Exiters are not necessarily only the smaller firms. While a highly innovative and uncertain environment can threaten the survival of infant firms, the exit of mature firms is driven by the innovation of young firms, following the gale of creative destruction.

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Section: Two Different Stylized Facts On the Process Of Exit Of Firmsmentioning

confidence: 99%

Time to exit: “revolving door effect” or “Schumpeterian gale of creative destruction”?

et al. 2020

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“…An analysis of the qualities of 61 stock-listed firms that underwent voluntary liquidation in the period between 1970 and 1980 was also conducted by G. Ervin and J. McConnell [1997]. Their findings revealed that the liquidated firms -compared to the non-liquidated ones -featured a lower Tobin's Q, a higher share of equity owned by the persons managing a given entity, and more frequent attempts of taking over the control of a given firm in periods preceding liquidation.…”

Section: Empirical Studies On Company Liquidationmentioning

confidence: 99%

Voluntary liquidation: When is it financially profitable?

Wnuczak

2019

JMFS

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The aim of this article is to offer insight into a concept making it possible to assess the financial rationality of the voluntary liquidation of businesses. The author of the study presents a decision-making algorithm that should be applied before deciding to voluntarily liquidate a business entity. The algorithm is based on the concept of Value Based Management (VBM), and the related calculations have been performed following the basic rules of mathematical finance. The presented solution is also based on the calculation of free cash flow generated by an enterprise for its owners and on investigating the relationship between the said cash flow and the rate of return expected to be attained by the enterprise’s owners. Because no such models are given or discussed in the literature covering the subject matter, it appears that the proposed solution may become a valuable tool to improve the process of making a decision in the scope of voluntary liquidation of an enterprise.

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“…This study focuses primarily on regulatory variables, arguing that the form of restructuring chosen depends largely on the degree of investor protection (in a given country), as well as on labor laws. 1 These studies include Brown, James and Mooradian's (1993) work on public debt and bank debt restructurings; Gilson (1990) on bank debt restructurings; Brown, James and Mooradian (1994) on asset sales; Erwin and McConnell (1997) on piecemeal voluntary liquidations; Tashjian, Lease and McConnell (1996) on prepackaged bankruptcies; and Ang, Chua and McConnell (1982), Franks and Torous (1989) and Hotchkiss (1994) on bankruptcy filings.…”

Section: Introductionmentioning

confidence: 99%

Corporate Response to Distress: Evidence from the Asian Financial Crisis

Faccio¹,

Sengupta²

2006

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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.

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To live or let die? An empirical analysis of piecemeal voluntary corporate liquidations

Cited by 12 publications

References 16 publications

Time to exit: “revolving door effect” or “Schumpeterian gale of creative destruction”?

Time to exit: “revolving door effect” or “Schumpeterian gale of creative destruction”?

Voluntary liquidation: When is it financially profitable?

Corporate Response to Distress: Evidence from the Asian Financial Crisis

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