Financial Distress and Corporate Turnaround: An Empirical Analysis of the Automotive Supplier Industry

176 Pages·2013·2.68 MB·English

by  Martin Schmuck (auth.)

Financial Distress and Corporate
Turnaround
Martin Schmuck
Financial Distress
and Corporate
Turnaround
An Empirical Analysis of the
Automotive Supplier Industry
Martin Schmuck
TU München
München, Germany
Dissertation Technische Universität München, 2012
ISBN 978-3-658-01907-5 ISBN 978-3-658-01908-2 (eBook)
DOI 10.1007/978-3-658-01908-2
The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Library of Congress Control Number: 2013935439
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V
FOREWORD
Since its early days, business research has paid special attention to companies in distress
situations. Its main focus has always been on the question of how distressed companies can
successfully turn around. This issue is of major importance to academics as well as
practitioners, but has only been partially answered so far. The reasons for the sparse and
inconclusive research results are manifold. On the one hand, results are frequently hampered
by the lack of exhaustive data and inappropriate research designs. On the other hand, the
research samples under examination are often very heterogeneous, making it impossible to
draw valid conclusions.
In his dissertation, Martin Schmuck analyzes the effectiveness of restructuring measures of
companies in financial distress. In order to overcome the limitations of prior studies, he
focuses on a sample of automotive suppliers; a distinctive, but nevertheless highly important
industry segment. The international sample also makes it possible to accommodate regional
differences. One of the main contributions of this doctoral thesis is that it includes a set of
healthy companies in the research sample and, thereby makes it possible to identify how
individual restructuring measures contribute to the corporate success of distressed and non-
distressed companies.
This dissertation is underpinned by an excellent review of existing research efforts, a carefully
constructed framework of hypotheses, and an extensive data set. The empirical analysis,
conducted specifically for the purpose of this thesis, is based on advanced econometric
methods, as well as an extremely well-structured approach. Both the research design and
research results are a valuable and innovative contribution to national and international
research on corporate turnaround. Martin Schmuck’s dissertation on financial distress and
corporate turnaround provides important new insights into this field, and future research
workers as well as corporate decision-makers in the automotive industry will be able to
significantly benefit from his work.
Munich, February 2013 Gunther Friedl
VII
PREFACE
This book is the product of more than three years of my intensive research as an external
doctoral student at the Department of Business Administration – Controlling at Technische
Universität München. This dissertation is a result of my passion for business management, my
scientific curiosity and, last but not least, my preference for working to a flexible time
schedule. However, it would never have been written without the support and advice of
numerous people, who provided both academic guidance and moral support, and thus played a
substantial role in the completion of my dissertation.
First of all, I am extremely grateful to my academic advisor Prof. Dr. Gunther Friedl for his
encouragement and trust during the past years. While he granted me a remarkable degree of
freedom in defining and pursuing my research, my work would not have been possible
without his invaluable advice and guidance. I would also like to thank the entire team of Prof.
Dr. Gunther Friedl’s chair for welcoming me to their team as an external doctoral candidate.
Furthermore, I would like to thank the two other members of my dissertation committee, Prof.
Dr. Dr. Ann-Kristin Achleitner for kindly agreeing to provide a second opinion, and Prof. Dr.
Kaserer for chairing the examination board. I am very thankful for their efforts and the time
they spent serving on my committee.
Special thanks go to my employer Oliver Wyman for generously supporting my Ph.D. leave.
In particular, I would like to thank my advisor Dr. Tobias Eichner, who laid the academic
foundation for my work, and also Dr. Lutz Jaede, who had already sponsored my diploma
thesis. I am especially indebted to my former colleague Peter Bosch, who supported my move
from consulting into academia early on, and without whom I would still be looking for the
right moment to start this venture.
I would also like to thank my fellow doctoral student Marcel Naujoks for his thoughtful
feedback and our ongoing discussions. I am thankful to Doug Boyle, Patrick Rohrmeier, and
Tobias Wiesner for reading my thesis and for their helpful feedback. I would also like to
thank all my friends who shared distractions from academia with me during the last three
years. Finally and most importantly, my deepest gratitude goes to my family. I would like to
thank my parents Maria and Hajo Schmuck for unconditionally supporting my education at all
times, as well as my brother Stefan, whom I could always rely on. I would also like to express
my utmost gratitude to my fiancée Sonja for her unreserved faith and support from day one of
the dissertation project.
I wish to dedicate this thesis to my parents.
Munich, February 2013 Martin Schmuck
IX
SYNOPSIS
SYNOPSIS ................................................................................................................................... V(cid:3)
TABLE OF CONTENTS ................................................................................................................. XI(cid:3)
LIST OF FIGURES ..................................................................................................................... XIII(cid:3)
LIST OF TABLES ...................................................................................................................... XIV(cid:3)
LIST OF ABBREVIATIONS .......................................................................................................... XV(cid:3)
1. INTRODUCTION AND PROBLEM STATEMENT .................................................................. 1
1.1(cid:3) Research objectives ...................................................................................................... 2(cid:3)
1.2(cid:3) Motivation and significance of the topic ...................................................................... 6(cid:3)
1.3(cid:3) Research design .......................................................................................................... 12(cid:3)
1.4(cid:3) Study outline .............................................................................................................. 15(cid:3)
2. LITERATURE REVIEW: EARLIER RESEARCH AND STATUS OF THE AREA ........................ 17
2.1(cid:3) Research on corporate crisis ...................................................................................... 18(cid:3)
2.2(cid:3) Empirical research on corporate turnaround .............................................................. 23(cid:3)
3. RESEARCH FOUNDATIONS: THEORETICAL FRAMEWORK AND HYPOTHESIS ................. 27
3.1(cid:3) Definitions .................................................................................................................. 28(cid:3)
3.2(cid:3) Research framework .................................................................................................. 35(cid:3)
3.3(cid:3) Summary of research hypotheses ............................................................................... 58(cid:3)
4. SAMPLE SELECTION AND ANALYTICAL METHODS ........................................................ 61
4.1(cid:3) Sample selection process ........................................................................................... 62(cid:3)
4.2(cid:3) Variables and measures .............................................................................................. 65(cid:3)
4.3(cid:3) Statistical methods ..................................................................................................... 71(cid:3)
5. EMPIRICAL RESULTS: DISCUSSION AND ANALYSIS ...................................................... 83
5.1(cid:3) Sample descriptives .................................................................................................... 84(cid:3)
5.2(cid:3) Effectiveness of restructuring activities ..................................................................... 88(cid:3)
5.3(cid:3) Strategies of distressed and non-distressed companies ............................................ 110(cid:3)
5.4(cid:3) Turnaround archetypes ............................................................................................. 117(cid:3)
6. CONCLUSION ............................................................................................................. 125
6.1(cid:3) Course of study and main findings .......................................................................... 126(cid:3)
6.2(cid:3) Limitations and directions for future research ......................................................... 130(cid:3)
APPENDIX ................................................................................................................................ 133(cid:3)
REFERENCES ........................................................................................................................... 154(cid:3)
XI
TABLE OF CONTENTS
SYNOPSIS ................................................................................................................................... V(cid:3)
TABLE OF CONTENTS ................................................................................................................. XI(cid:3)
LIST OF FIGURES ..................................................................................................................... XIII(cid:3)
LIST OF TABLES ...................................................................................................................... XIV(cid:3)
LIST OF ABBREVIATIONS .......................................................................................................... XV(cid:3)
1. INTRODUCTION AND PROBLEM STATEMENT .................................................................. 1
1.1(cid:3) Research objectives ...................................................................................................... 2(cid:3)
1.1.1(cid:3) Research problem ......................................................................................................... 2(cid:3)
1.1.2(cid:3) Research target and questions ...................................................................................... 3(cid:3)
1.1.3(cid:3) Intended contribution and originality ........................................................................... 4(cid:3)
1.2(cid:3) Motivation and significance of the topic ...................................................................... 6(cid:3)
1.2.1(cid:3) Research object ‘Automotive supplier industry’ ......................................................... 6(cid:3)
1.2.2(cid:3) Success factor research on corporate turnaround ......................................................... 9(cid:3)
1.3(cid:3) Research design .......................................................................................................... 12(cid:3)
1.4(cid:3) Study outline .............................................................................................................. 15(cid:3)
2. LITERATURE REVIEW: EARLIER RESEARCH AND STATUS OF THE AREA ........................ 17
2.1(cid:3) Research on corporate crisis ...................................................................................... 18(cid:3)
2.2(cid:3) Empirical research on corporate turnaround .............................................................. 23(cid:3)
3. RESEARCH FOUNDATIONS: THEORETICAL FRAMEWORK AND HYPOTHESIS ................. 27
3.1(cid:3) Definitions .................................................................................................................. 28(cid:3)
3.1.1(cid:3) Financial distress ........................................................................................................ 28(cid:3)
3.1.2(cid:3) Corporate turnaround ................................................................................................. 32(cid:3)
3.1.3(cid:3) Corporate restructuring .............................................................................................. 34(cid:3)
3.2(cid:3) Research framework .................................................................................................. 35(cid:3)
3.2.1(cid:3) Preliminaries .............................................................................................................. 35(cid:3)
3.2.2(cid:3) Process ....................................................................................................................... 36(cid:3)
3.2.3(cid:3) Content ....................................................................................................................... 38(cid:3)
3.2.3.1(cid:3) Overview .................................................................................................................... 38(cid:3)
3.2.3.2(cid:3) Managerial restructuring ............................................................................................ 39(cid:3)
3.2.3.3(cid:3) Operational restructuring ........................................................................................... 42(cid:3)
3.2.3.4(cid:3) Financial restructuring ............................................................................................... 45(cid:3)
3.2.3.5(cid:3) Asset restructuring ..................................................................................................... 49(cid:3)
3.2.4(cid:3) Context ....................................................................................................................... 52(cid:3)
3.2.5(cid:3) Turnaround archetypes ............................................................................................... 56(cid:3)
3.3(cid:3) Summary of research hypotheses ............................................................................... 58(cid:3)
4. SAMPLE SELECTION AND ANALYTICAL METHODS ........................................................ 61
4.1(cid:3) Sample selection process ........................................................................................... 62(cid:3)
4.2(cid:3) Variables and measures .............................................................................................. 65(cid:3)
4.3(cid:3) Statistical methods ..................................................................................................... 71(cid:3)
4.3.1(cid:3) Preliminaries .............................................................................................................. 71(cid:3)
4.3.2(cid:3) Logistic regression ..................................................................................................... 72(cid:3)
4.3.3(cid:3) Analysis of covariance ............................................................................................... 78(cid:3)
4.3.4(cid:3) Cluster analysis .......................................................................................................... 80(cid:3)
XII
5. EMPIRICAL RESULTS: DISCUSSION AND ANALYSIS ...................................................... 83
5.1(cid:3) Sample descriptives .................................................................................................... 84(cid:3)
5.2(cid:3) Effectiveness of restructuring activities ..................................................................... 88(cid:3)
5.2.1(cid:3) Preliminaries .............................................................................................................. 88(cid:3)
5.2.2(cid:3) Univariate analysis ..................................................................................................... 89(cid:3)
5.2.3(cid:3) Multivariate logistic regression analysis .................................................................... 97(cid:3)
5.3(cid:3) Strategies of distressed and non-distressed companies ............................................ 110(cid:3)
5.3.1(cid:3) Preliminaries and MANCOVA ................................................................................ 110(cid:3)
5.3.2(cid:3) Univariate ANCOVA ............................................................................................... 112(cid:3)
5.4(cid:3) Turnaround archetypes ............................................................................................. 117(cid:3)
5.4.1(cid:3) Preliminaries ............................................................................................................ 117(cid:3)
5.4.2(cid:3) Cluster analysis ........................................................................................................ 118(cid:3)
6. CONCLUSION ............................................................................................................. 125
6.1(cid:3) Course of study and main findings .......................................................................... 126(cid:3)
6.2(cid:3) Limitations and directions for future research ......................................................... 130(cid:3)
APPENDIX ................................................................................................................................ 133(cid:3)
REFERENCES ........................................................................................................................... 154(cid:3)
XIII
LIST OF FIGURES
Figure 1: Global light vehicle production by region 1999-2008. .................................. 7(cid:3)
Figure 2: Research streams on corporate crisis. .......................................................... 18(cid:3)
Figure 3: Empirical large-sample studies on corporate turnaround. ........................... 25(cid:3)
Figure 4: Stages of corporate distress. ......................................................................... 28(cid:3)
Figure 5: Corporate restructuring categories. .............................................................. 34(cid:3)
Figure 6: Overview research framework. .................................................................... 36(cid:3)
Figure 7: Restructuring process. .................................................................................. 38(cid:3)
Figure 8: Restructuring content. .................................................................................. 39(cid:3)
Figure 9: Restructuring context. .................................................................................. 52(cid:3)
Figure 10: Turnaround archetypes. ................................................................................ 56(cid:3)
Figure 11: Overview research hypotheses. .................................................................... 59(cid:3)
Figure 12: Sample selection process. ............................................................................ 62(cid:3)
Figure 13: Predictive-validity framework. .................................................................... 66(cid:3)
Figure 14: Variable definitions. ..................................................................................... 70(cid:3)
Figure 15: Overview statistical methods. ...................................................................... 71(cid:3)
Figure 16: Matched sample - Profitability development. .............................................. 87(cid:3)
Figure 17: Model 2 – Sensitivity analysis. .................................................................. 103(cid:3)
Figure 18: Cluster analysis – Elbow chart. .................................................................. 118(cid:3)