Three essays on firms' emergence

Three essays on firms' emergence

This research explores firms’ emergence from bankruptcy in the context of firm size, managerial ability, and firm-level political risk. It addresses the key problem of why certain firms that file for Chapter 11 bankruptcy are more vulnerable to collapse than likely to emerge from bankruptcy. Firm size is often viewed as a buffer against financial distress due to the firm’s potential resources, including the manager’s ability to navigate the bankruptcy proceedings, and dealing with firm-level political risk sentiments that are likely to be attached in support of the firm’s emergence. The main objective of this research is to understand the dynamics of the likelihood of firm emergence from Chapter 11 bankruptcy. The research’s motivation is originally derived from the breadth of economic uncertainty, arising from events such as the Global Financial Crisis (GFC) and the COVID-19 pandemic, through which firms have become severely distressed due to the pressure of financial conditions. However, measuring the success or lack of success of a firm’s emergence from bankruptcy is unpredictable. Thus, this research aims to predict the likelihood of firm emergence in the context of firm size, managerial ability, and firm-level political risk. The research is documented in this PhD thesis by publication, comprising three research articles on firm bankruptcy emergence. The bankruptcy data were mainly collected from the Florida–UCLA–LoPucki Bankruptcy Research Database (BRD) which specifically includes firm emergence data from firms that filed for Chapter 11 bankruptcy. The research employs logistic regression, including addressing potential endogeneity concerns by using entropy balancing and instrumental variable analysis. The research findings are that firm size, managerial ability, and firm-level political risk are significantly associated with the likelihood of firm emergence from bankruptcy. These findings have specific implications for US bankruptcy courts, the US government, creditors, and firms navigating bankruptcy.

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