Determinants of post-bankruptcy performance : an empirical study of insolvent companies in Thailand

Abstract

This thesis examines determinants of post-bankruptcy performance by using insolvent firms under the bankruptcy reorganization proceedings of the 1940 Thai Bankruptcy Act. The purpose of the study is to investigate whether the key governance mechanisms within this process are factors which may contribute to successful reorganization and how they affect a firm's post-bankruptcy performance. Using agency theory, a sample of III filing companies whose plans have been confirmed by the Thai Central Bankruptcy Court during 1999-2002 provide the data of the study. Descriptive statistics and ordinary least squares regression analysis are employed for data analysis. The results indicate that among three types of governance mechanisms in the bankruptcy reorganization process, namely, monitoring, incentive and restructuring mechanisms, monitoring and incentive mechanisms are significant determinants of a firm's post-bankruptcy performance. The key monitoring mechanism is ownership concentration of common shares held by the largest shareholder, whereas the critical incentive mechanisms are cash compensation for the plan administrator and percentage of common shares held by the plan administrator. Asset restructuring is statistically insignificant but positively links to post-bankruptcy performance. The results indicate that these mechanisms can mitigate agency problems of insolvent companies and increase post-bankruptcy performance over a three year period.