Restructuring Strategies of Chinese Firms in Distress: Are They Value Enhancing?

Abstract

We investigate the valuation effect of 303 hand-collected restructuring announcements made by 100 distressed listed companies in China and provide insights on which restructuring mechanisms enhance value in this emerging market context. Asset restructuring is the most popular strategy. In the light of difficulties in officially liquidating economically unviable firms in the Chinese context, asset restructuring provides asset mobility essential for an enterprise economy. M&A is value-enhancing only for non-State Owned Enterprises. In addition, asset sales are not perceived positively by the market. Our overall conclusion is that the stock market perceives that government ownership has a negative impact on companies' distress-resolution strategies.

Keywords: distress resolution, China, SOE, event study

JEL Classification: G34, P27