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Institutions, ownership structures, and distress resolution in China - ScienceDirect
Source: www-sciencedirect-com.ezproxy.library.uq.edu.au
Article summary:
1. The efficiency of firm distress resolution in China depends on the quality of government.
2. Private firms have better performance when in distress than state-owned enterprises (SOEs).
3. Government quality and ownership structure affect the recovery of distressed firms.
Article analysis:
The article “Institutions, Ownership Structures, and Distress Resolution in China” is a well-researched and comprehensive analysis of how institutional factors influence the behavior of distressed firms in emerging markets, particularly in China. The authors provide evidence that local government quality and corporate ownership structure are important determinants of firm performance during periods of financial distress, as well as the likelihood and speed of recovery from such distress.
The article is generally reliable and trustworthy, as it provides a thorough review of existing literature on the topic, presents detailed data from two comprehensive samples, and employs various econometric specifications to test its hypotheses. The authors also conduct robustness tests to ensure that their results remain unchanged across different definitions for distress, proxies for institutional factors, and econometric specifications.
However, there are some potential biases that should be noted. First, the article focuses solely on Chinese firms and does not consider other emerging markets or developed economies. This may lead to an incomplete understanding of how institutions shape distressed-firm behavior more broadly. Second, while the authors do discuss potential risks associated with weak creditor protection in emerging markets, they do not explore counterarguments or present both sides equally when discussing this issue. Finally, while the authors provide evidence that private firms have better performance when in distress than SOEs, they do not explore why this might be the case or what implications this has for policy makers or investors.
In conclusion, “Institutions, Ownership Structures, and Distress Resolution in China” is a reliable source for understanding how institutional factors influence distressed-firm behavior in emerging markets. However, it should be read with caution due to its focus on Chinese firms only and lack of exploration into counterarguments or implications for policy makers or investors.