Abstract
Globalization has precipitated movement of output and employment between regions. We examine factors related to corporate financial distress across three continents. Using a multidimensional definition of financial distress we test three hypotheses to explain financial distress using historical financial data. A null hypothesis of a single global model was rejected in favor of a fully relaxed model which created individual financial distress models for each region. This result suggests that despite other indications of worldwide convergence, international differences in accounting rules, lending practices, managements skill levels, and legal requirements among others has kept corporate decline from becoming commoditized.
Highlights
As companies move production offshore they face a growing risk of supply-chain disruption caused by the possible financial distress of foreign suppliers
This paper looks at one area, financial distress, where similarities may exist between global regions
This paper explores that question by developing a financial distress model across three global regions
Summary
As companies move production offshore they face a growing risk of supply-chain disruption caused by the possible financial distress of foreign suppliers. There has been substantial bankruptcy prediction research; in contrast, few analysts have created models to forecast financial distress. In this globally connected world it is essential that there be a framework for evaluating financial distress risk. No similar model exists for companies in other global regions. Are these similarities limited to areas such as technological adoption, arts and culture, and cuisine? This paper looks at one area, financial distress, where similarities may exist between global regions. Profound differences between regions in accounting rules, legal practices, environmental laws, and business practices among others may limit the degree of convergence in the area of financial distress. This paper explores that question by developing a financial distress model across three global regions
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