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Ultimate Controllers, Ownership and the Probability of Insolvency in Financially Distressed Firms
Author(s) -
PolettiHughes Jannine,
Ozkan Aydin
Publication year - 2014
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2605
Subject(s) - insolvency , financial distress , cash flow , business , sample (material) , bankruptcy , control (management) , finance , financial system , economics , monetary economics , management , chemistry , chromatography
This paper investigates the impact of corporate ownership and control on the outcome of financial distress. It is argued that the likelihood of financial distress resulting in insolvency depends on whether firms have controllers, the type of controllers and their cash flow ownership. Using a sample of 484 UK firms, 81 of which filed for insolvency, we show that financially distressed firms with controllers are more likely to be insolvent than widely held firms, where the probability of insolvency is greater when controllers are family or financial institutions. However, the probability of insolvency reduces significantly as the controllers' cash flow ownership increases beyond 10%. Copyright © 2013 John Wiley & Sons, Ltd.