Corporate distress and financial restructuring decisions in different stages of life cycle

Abstract:
Purpose
This research was conducted to investigate the financial restructuring decisions of firms in an emerging country when encountering distress in different corporate life cycles.

Design/methodology/approach
Logistic regression and the KMV Merton model on STATA17 are employed on 645 listed firms on the Ho Chi Minh (HoSE) and Hanoi Stock Exchange (HNX) collected from FiinProX.

Findings
Firms in an emerging country, when encountering financial distress, are more likely to use dividend restructuring rather than the debt and equity strategies. However, at the birth stage, when encountering the distress, they were found to resort to lower dividend payouts to keep business in operation.

Practical implications
The findings suggest that managers should consider the impact of the business lifecycle in making decisions for any scenario, while authorities are encouraged to upgrade legal corridors for dissolution procedures, creating opportunities for firms in some specific life stages.

Originality/value
The study contributes to firm restructuring and corporate-life-cycle theory in emerging markets. Different from previous research, this study theorized and found evidence that firms might follow different rather than common restructuring strategies at different stages of their life cycles when faced with financial distress.