Business Rescue Research Articles

Legal regulation of cross-border insolvency (bankruptcy) in the European Union

INTRODUCTION. The regulation of the institute of cross-border bankruptcy is currently acquiring the greatest relevance, given the globalization of the economy and the internationalization of business relations. In particular, transactions with foreign counter-parties are increasingly being concluded, property is purchased abroad, large organizations establish representative offices in foreign countries. Of particular relevance is the regulation of cross-border bankruptcy in the territory of the EU, which is an integration association. In this connection, the considered problems are of particular relevance.MATERIALS AND METHODS. This study is based on scientific works of Russian and foreign researchers in the field of private international law and European law, as well as on the analysis of EU legal acts. Methodological basis of research includes a variety of methods of scientific knowledge - general scientific (analysis and synthesis, induction and deduction, systemic, method of theoretical modeling, etc.) and special legal (method of legal interpretation, comparative legal, etc.).RESEARCH RESULTS. Increased attention to the legal regulation of cross-border bankruptcy in the EU territory is currently due to the desire to develop foreign economic relations, as well as the need to eliminate existing gaps in legislation that prevent the creation of a single market. As one of the components of legal cooperation in civil cases, the legal mechanism in the field of cross-border bankruptcy is characterized by a combination of two methods: unification and harmonization of legislation.DISCUSSION AND CONCLUSIONS. In the framework of this article the authors considered the very notion of cross-border bankruptcy, as well as highlighted the main characteristics of the models of its settlement in the international community. Modern EU legal system in the field of regulation of cross-border bankruptcy acts taking into account the existing judicial practice, in order to avoid infringement of the rights of creditors, who expect the fullest satisfaction of their claims, reducing costs and timing of the case. Measures to harmonize the EU legislation in the field of bankruptcy in the member states of the Union are aimed at creating a culture of business rescue and bona fide debtor.

South African Creditors May Wield the Gibbs Rule to Confront an Italian Pre-Insolvency Statutory Restructuring Composition

This article summarises the judgment in Cooperativa Muratori & Cementisti & others v Companies and Intellectual Property Commission & others, in which the Supreme Court of Appeal confirmed the statutory denial of business rescue to external companies and refused to recognise and apply the Italian restructuring process in South Africa. The article then discusses the private international law (conflict of laws) on the discharge of a contract by a foreign sequestration or liquidation, and the statutory novation of the contract by a foreign pre-insolvency composition or restructuring. Central to the debate over characterisation and choice of law (between contract or insolvency) is the effect of the Gibbs rule, a long-standing feature of the law of the United Kingdom, South Africa, and several other countries, but increasingly controversial because of contemporary ideas of cross-border insolvency law. The article argues for an approach based on contract and company law rather than insolvency law, because pre-insolvency proceedings, by definition, do not involve a winding-up order or a liquidation process, and, if timely and successful, prevent both. The South African private international law on the recognition of a foreign pre-insolvency statutory composition or restructuring as a foreign judgment may thus need to be reconsidered.

A Quantitative Analysis of Valuation Disclosure in Published Business Rescue Plans

Purpose: Given the importance of valuations in business rescue and the vague guidance provided by the Companies Act 71 of 2008, the study analyses valuation-related disclosure in published business rescue plans (PPs) in South Africa (SA). The main objective of the paper, in addition to being exploratory of actual practices, was to highlight a need for improvements in the Companies Act legislation to support more consistent practices. Design: A quantitative content analysis was done of 55 PPs between 2013 and 2018, using descriptive content analysis and inferential statistical techniques. Findings: Primarily, the list of material assets were disclosed at accounting book values in PPs, and liquidation values were mostly independently determined. PPs described various risks relating to the implementation of the PP; however, the PPs mostly lacked calculations of how the risk will affect the business rescue value. On average, the business rescue value exceeded the liquidation value with 36.4 cents for concurrent creditors compared to 33.7 and 21.2 cents for preferent and secured creditors, respectively. Notably, when the PP included a sale of the business, offers received were, on average, 2.5 times the liquidation value and represented 57% of the book value of the company’s assets at the time. Practical implications: The study suggests improvements to the Companies Act to support more consistent valuation-related disclosure in PPs in SA, in particular, the disclosure of the valuation basis used, the average business rescue premium and offers relative to asset values. Such disclosure would provide evidence to investors on the sound potential of investing in a financially distressed company in SA but, at the same time, set realistic sale expectations for both creditors, BRPs and shareholders. Originality: In view of limited empirical evidence on business rescue prices, the article presents the results of original research in this field.

Informing the Vote: The Business Rescue vs Liquidation Decision

Background: Non-unitary insolvency systems require an initial choice between liquidation and rehabilitation. For those systems, the decision to further support rehabilitation is often reinforced by the estimate of a lesser return in liquidation. The creditors’ decision to either accept or reject the business rescue plan depends substantially on comparing the proposed liquidation value with the business rescue value that is mandated in the business rescue plan. Purpose: The purpose of this study is to compare the proposed liquidation value with the actual liquidation value of firms that had commenced business rescue proceedings but were subsequently liquidated. This study is exploratory; therefore, our aim is to use the findings of this study to derive future research opportunities for scholars to explore. Methodology: This research adopted a content analysis research approach by collecting documents such as business rescue plans and liquidation accounts, which are qualitative in nature, and describing these documents through quantitative data analysis. Findings: The study revealed that for the secured creditors’ sample, there was a significant difference between the proposed liquidation value and the actual liquidation value. For the unsecured creditors’ sample, this study found no significant difference between the proposed liquidation value and actual liquidation value. Limitations: The major limitation of this study was access to data; therefore, the huge decline in the actual sample size in comparison to the expected sample size. Value: To the researchers’ knowledge, this is the first study comparing the proposed liquidation value to the actual liquidation value in order to determine whether differences exist. As a result, this study tackles a novel perspective on one of the influences that can affect the vote. This may be of particular importance to creditors, who may find the results of this study to be useful. Lastly, the findings of this study derived future research opportunities for scholars to explore.

Ellerine holdings and African bank: a toxic acquisition recipe?

Learning outcomes After working through and discussing this case, learners should be able to:1. evaluate the financial condition of Ellerine Holdings Limited (EHL) at the time of the merger proposal and use it to make inferences about the company’s ability, at that time, to function effectively as a going concern;2. identify the conditions within EHL and in the operating environment that may have made it necessary for EHL to seek to change its business strategy;3. determine whether the acquisition price offered to EHL by African Bank Investments Limited (ABIL) was fair; and4. compute the value accretion/loss expected to be realised by the existing shareholders of ABIL and EHL under the merger proposal. Case overview/synopsis This case situates the directors of Ellerine Holdings, a furniture retail company that merged with African Bank Limited in 2007, reflecting on the events that led up to both entities being placed into business rescue in 2014 and asking whether the merger was the cause of the demise. If they had chosen an alternative partner, would the results have been different? Complexity academic level Masters Level students – MBA or Masters in Finance. Supplementary materials For instructors.The following material has been provided with the teaching note for instructors:- Teaching Note.- Johannesburg Stock Exchange News System (SENS) extract of related original filing.For students.The following supplementary material has been provided to accompany the case:- Financial information on the two companies (Excel spreadsheet).- Johannesburg SENS extract of related original filing. Subject code CSS 1: Accounting and Finance.

Knowledge Management and Business Rescue in South Africa: A Systematic Literature Review

The business rescue law, in the South African Companies Act, No. 71 of 2008 was designed to alleviate the challenges facing distressed companies. The purpose of the paper is to provide a coherent synthesis of the systematic literature review on the incorporation of knowledge management into the business rescue practices in South Africa. Scholarly databases were searched to identify papers on knowledge management and business rescue in South Africa, which resulted in initial of 1961 papers. Exclusion criteria was applied, and it emerged that 12 papers were relevant for the study. Findings indicate the business rescue is a relatively new field in academic research and that there is a need to conduct further research on knowledge management pillars used in the business process by practitioners and the executives of distresses companies. The paper concludes that study findings can serve as guidance for improving practice notes and procedures in the industry.

A case for excluding foreign companies from the application of the Companies Act of 2008 is unconvincing

The approach adopted in the Companies Act 71 of 2008 (2008 Companies Act) is to significantly limit the regulation of foreign companies conducting business (or non-profit activities) in South Africa that meet the registration requirements of the Act. The rationale behind this approach is understood as being s 7(c) of the Act – to promote innovation and investment in South African markets. This article argues that the general exclusion of external companies from the 2008 Companies Act inadvertently impedes the furtherance of several stated purposes of the Act – which, in turn, adversely impacts the ability to achieve innovation and investment in South African markets. This article also argues that external companies are effectively excluded from certain provisions that may benefit them (including corporate governance and business rescue provisions). The current position also results in some uncertainty and unpredictability in relation to the determination of whether a foreign company is required to adhere to the registration requirements in terms of s 23 of the Act, application of certain provisions, and conflict of laws on matters that remain ungoverned by the 2008 Companies Act regarding external companies. The general exclusion of external companies from the Act is a matter that requires future reconsideration (in a manner that ensures that the stated purposes of the Act are met and that the framework within which external companies operate in South Africa is not disregarded).

Case Notes: The income tax position of a creditor on the insolvency and/or business rescue of a debtor

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South African Airways – born again?

Case overview This case focuses on the business rescue of South African Airlines. SAA, four times rated the best airline in Africa (SAA, 2019), was already insolvent when in early 2020 COVID-19 decimated the world. The state-owned airline, which had last made profits in 2011, continued to lose millions of passengers to competitors over the next decade and, despite bailouts of more than R40bn, entered Business Rescue in December 2019, still owing creditors more than R26bn. To the surprise of many, Public Enterprises minister Pravin Gordhan was determined to rescue the airline. In May 2021, the business rescue practitioners handed SAA back to the interim board and Thomas Kgokolo (CA) (MBA) was appointed interim CEO. In June 2021, Gordhan announced a “born again” SAA, “almost ready to take off” and promised no more bailouts. But, with several billion rand outstanding to complete the rescue plan, a grounded fleet, unresolved labour problems, an critical but unnamed “strategic-equity partner” and a largely unvaccinated country entering its third COVID wave – what were the chances? Expected learning outcomes Within the framework of a country desperately in need of jobs and short of capital, the case raises questions about ethics, accountability, responsibility, management, economics and strategy. Should retrenched workers in airlines feel the consequences of their unfortunate career choices? Ought government’s bail-out already failed industries? Should governments run airlines? What sources of funds are available? Have all the necessary requirements for “restructuring” to succeed been satisfied? Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy. Study level/applicability MBA, Exec-ed.

Companies and the Constitutional ‘Right to Life’: A Critical Analysis of the Companies Act 71 of 2008

Corporate law is founded on the fictitious principle of the separate legal personality of a company. This principle entails that a company is a juristic person, separate and distinct from any persons involved with the company. Because of their juristic nature, companies can acquire rights and incur liabilities in their own capacity. This corporate-law principle is rooted in section 8(4) of the Constitution of the Republic of South Africa, 1996 (hereafter the Constitution) which expressly provides the Bill of Rights applies to juristic persons subject to the stated considerations. The fact that companies as juristic persons, similar to natural persons, are entitled to the rights and freedoms contained in the Bill of Rights reveals that the Constitution recognises companies as ‘persons’. In this light, the article investigates how the Companies Act 71 of 2008 (hereafter the Companies Act) has embraced the constitutional right to life of companies as juristic persons as provided for in section 11 of the Constitution. To achieve this aim, the author applies the doctrinal legal research methodology – a legal research model which entails an examination of so-called ‘black-latter law’ with the Companies Act being the principal instrument. The results show that, although companies to do not enjoy the right to life in the same manner as natural persons, the literature examined reveals that the Companies Act recognises company’s constitutional right to ‘life’. In many instances, the right to continued existence of companies is promoted in various ways, including the introduction of the novel concept of business rescue by the Companies Act as a way of promoting the right to ‘life’ of companies.
 
 Received: 20 August 2021 / Accepted: 7 October 2021 / Published: 5 November 2021

The business rescue practitioners’ professionalism: are we there yet?

Purpose and context: The purpose of the study was to explore the construction of professionalism in a multiple professional bodies (MPB) landscape in South Africa (SA) and demonstrate how this construction can be used to enhance a professional accreditation regime. Professional accreditation has become a pre-requisite for business rescue practitioners (BRPs). The Companies and Intellectual Property Commission (CIPC) licensing is linked to multiple professional bodies’ knowledge and practices but are not generic. This study was guided by one key question: How do PBs providing BRPs construct professionalism, and to what extent can the existing construction of professionalism facilitate the development of a professional accreditation regime? Research design and methods: A qualitative research design used required researchers to use four consecutive steps, namely (a) interviewing member services’ managers at four professional bodies (PBs); (b) systematic content analysis of codes of professional conduct and policy statements to identify constituent professionalism notions; (c) a systematic search of the literature to identify notions of professionalism mentioned in definitions and explanations of the construct; and (d) analysis of notions of professionalism using the constant comparison procedure to reveal critical themes. Results: A total of 90 separate notions of professionalism were identified in the 192 scholarly papers included in our study. The identified themes within business rescue practitioner (BRP) professionalism (emphasising relational aspects) point to practitioner dealings with (i) clients (business rescue candidates); (ii) government and others; (iii) the PB; and (iv) oneself to gain the essence of occupation. There is fragmentation between the constructed conceptualisations of professionalism among PBs, leading to an incoherent and inconsistent expert accreditation regime. Practical implications and value: The results from the indicated exploration steps were used to advance a programmatic framework to construct professionalism in an MPB landscape and set a future research agenda. The results also show that business rescue practitioners’ professionalism cannot be attained in a multi-professional body setting with an integrated professional accreditation framework.

A critical review of the impact of South Africa’s mine closure policy and the winding-up process of mining companies

Background: Most mining operations are viable for a period of 30 years, depending on the mineral extracted and the available reserves. Whilst the expectation is that mines will continue uninterrupted until the planned period is complete, unscheduled closure can occur. Sudden and unplanned mine closure can result in immediate environmental and social impacts. In South Africa, the challenges of mine closure are exacerbated by unexpected sudden closures owing to winding-up and business rescue processes. The literature is inconclusive regarding these issues and there is poor integration of affected communities by mining operations. Aim: We reviewed South Africa’s legal frameworks relating to mine closure, the winding-up of gold mining companies and the impact of sudden closure on the environment and communities. Method: This review built on and extended previous systematic reviews. We focused on the regulation for financial provisioning for prospecting, mining, exploration and rehabilitation. Two examples of gold mining companies that were closed prematurely were examined. We also reviewed the mine closure and environmental policies of other countries, notably Australia and Canada and noticed similarities to South African policies. Results: Differences are evident in the enforcement of compliance in Australia and Canada, which are more proactive in dealing with the challenges of winding-up and its impacts. Conclusion: South Africa could adopt these countries’ models to enforce compliance and proactivity regarding sudden mine closure. One recommendation is to establish a fund for immediate rehabilitation in such cases as part of the temporary mine closure framework.

The State of Business Rescue Practitioners Professional Accreditation

Business rescue practitioners (BRPs) are subject to many allegations of abuse and, therefore, professional accreditation has become a pre-requisite. The Companies and Intellectual Property Commission (CIPC) licensing is linked to multiple professional bodies’ knowledge and practices but is not generic. This study was guided by one key question: What is BRPs’ accreditation’s current state in a multiple professional body occupation? We used data mapped to scholarly and documented policy sources, categorized results from extensive reading, and integrated critical constructs (after the deconstruction of concepts) to yield a conceptual framework to develop a comprehensive understanding of professional accreditation. The results confirm the existence of a legal framework and institutional arrangements that are not coherently applied because of the absence of a professional accreditation framework (PAF). The proposed conceptual framework captures the concepts of the business rescue domain, professionalism, competency, accreditation, and definition of key terms to provide an interpretive approach to the BRPs’ accreditation reality resulting in a PAF based on the integration of BRP tasks and services and accreditation, competency, and professionalism.

Methodological Considerations in the Professional Accreditation Research

This essay paper provides methodological considerations for research on turnaround management (business rescue) practitioner (BRP) accreditation. The article responds to recent BRP licensing debates and the need to enhance BRP capabilities through continuing professional development (CPD). We assess existing data collection procedures using the practice theory and demonstrate sequenced integrated data collection procedures (IDCPs) to study BRPs’ professional accreditation frameworks. We illustrate IDCPs using a research design for “how BRPs should be accredited by their professional bodies (PBs) before obtaining a practice license”. The proposed IDCPs call for the purposeful interpretation of legislative instruments governing BRP work and other multiple-party data collection techniques. The paper lays out the problems associated with using questionnaire surveys and semi-structured interviews to document BRP practices and the required professional capabilities. We propose a research design to illustrate the application of the IDCPs in a multiple PB occupation.

The Rise of \u2018Group Solution\u2019 in Insolvency Law and Bank Resolution

This article traces the emergence of the concept of ‘group solution’ and its manifestations in insolvency law and bank resolution as an alternative to the rigid entity-by-entity approach. The rise of this concept can be linked to the recognition of the specificity of problems related to the insolvency of multinational enterprise groups, arising from group operational and financial interconnectedness. This has not happened at once, but has resulted from the evolution of views and ideas, evident in hard and soft law instruments of the 2000s and the 2010s. In light of this important development the article explores the concept of a group solution, its rationale, scope of application and limitations. It concludes that despite the gradual acceptance of the group phenomenon, a group solution has not been formed as a coherent and well-defined legal principle. Instead, it represents a variety of approaches, tools and practices, which pursue different policy objectives underpinned by different societal values. Among them are asset value maximization, business rescue, the protection of financial stability and the preservation of banks’ critical functions. With all its flexibility, a group solution has one pervasive limitation—it cannot trump the interests of individual group members and their creditors. At the same time, in order to realize the full potential of a group solution, it is necessary to embrace the group-sensitive and forward-looking interpretation of creditors’ interest, facilitating commercially sensible and practical group solutions.

Investigating the direct costs of business rescue

Orientation: The direct costs associated with business rescue proceedings are essential to the decision-making of directors, business rescue practitioners and other affected parties. Business rescue has come under criticism for being a costly procedure, but what constitutes these costs and how they are defined remain largely unknown.Research purpose: The aim of this study was to identify and measure the direct costs of business rescue proceedings in South Africa. This research also explored the relationship between direct costs and the following variables: firm size and duration of business rescue proceedings.Motivation for the study: Despite the significance of understanding reorganisation costs, astonishingly little is know about the size and determinants of the direct costs of business rescue in the South African context. Business rescue practitioners fees and other related expenses have been blamed for worsening business rescue proceedings’ reputation. However, researchers have not yet determined the nature or quantum of such costs.Research design, approach and method: This study employed an exploratory sequential mixed-method research design. The first phase comprised semi-structured interviews supplemented by a closed card sort with 14 business rescue practitioners. The first phase resulted in direct cost categories and components used to develop a survey instrument. The survey was administered in the second phase and measured the direct costs for 19 South African firms previously under business rescue.Main findings: The first phase results show that the direct costs of business rescue consist of four categories: the basic remuneration of the business rescue practitioner, contingency fees, professional fee disbursements and general disbursements. Because of the small sample size, the results of the second phase were inconclusive.Practical/managerial implications: This research contributes to the management body of knowledge by providing business rescue practitioners, the management of distressed companies, and affected parties, especially creditors with a starting point into understanding the direct costs of business rescue proceedings.Contribution/value-add: This is the first study of its kind, to quantitatively measure the direct costs of business rescue in the South African context. Therefore, the results of the study may offer affected parties some insight and clarity regarding the nature of the direct costs of business rescue.

The construction of occupational professionalism among business rescue practitioners supplying professional bodies

Purpose of the research: To identify and explore the construction of professionalism in a multiple professional bodies (MPB) landscape in South Africa (SA) and demonstrate how such construction can be used to enhance professional accreditation regime. Design of research and methodology: The study used a qualitative research design. This required five consecutive steps of (a) interviewing member services managers at four professional bodies (PBs); (b) systematic content analysis of codes of professional conduct (CPCs) and policy statements to identify constituent professionalism notions; (c) a systematic search of the literature to identify notions of professionalism mentioned in definitions and explanations of the construct; and (d) analysis of notions of professionalism using the constant comparison procedure to reveal key themes. The results in (a) through to (d) were used to advance a programmatic framework to construct professionalism in an MPB landscape. Research results: The construction of professionalism is linked to services rendered and competencies in the MPB landscape. The existing licensing regime encapsulates the increased importance of the MPB landscape, leading to a shift away from a conventional conceptualisation of professionalism in a single professional body (PB) setting. A total of 90 separate notions of professionalism were identified in the 192 scholarly papers included in our study. The identified theme within BRP professionalism (emphasising relational aspects) point to practitioner dealings with (i) clients (business rescue candidates); (ii) government and others; (iii) the PB; and (iv) oneself to gain the essence of occupation. There is fragmentation between the constructed conceptualisations of professionalism among PBs, leading to an incoherent and inconsistent expert accreditation regime. Practical implications and value: The findings of the study are useful in the integration of practitioner learning and development practices in the PBs whose members serve as BRPs. BRP is a regulated occupation and requires a distinct professional accreditation framework (PAF) to integrate multidimensional professionalism in the MPB landscape. Approaches to enhance accreditation should consider delineating BRP services and task from interview results from a community of practitioners. The PAF will structure the construction, investigation, and documentation of occupational professionalism required by the licensing authorities. It will also help delineate BRP as a discipline worth of academic and professional pursuits with known competencies.

Valuation practices under business rescue circumstances in South Africa

Background: A business rescue plan should indicate the benefits of adopting a business rescue plan as opposed to the benefits of immediate liquidation. Performing a valuation is thus a vital aspect of the business rescue process as the estimated values determine the amount to be divided between creditors and, if possible, shareholders. Conventional valuation methods have the underlying assumption that the business is a going concern (based on liquidy and solvency tests). However, a company in business rescue is not necessarily a going concern, nor in liquidation, leaving the company in a grey area in terms of valuation.Aim: This research explored how the business rescue value of a financially distressed company is determined.Setting: The setting for this study was South Africa.Method: Thematic analysis of qualitative data collected through 11 semi-structured interviews with senior business rescue practitioners (BRPs).Results: When the intention is to return the company to solvency, the BRPs prepared a short-term, undiscounted cash flow budget to determine the business rescue value, but without including a terminal value in the projected cash flows. In contrast, when the intention is to obtain a better return compared to immediate liquidation, BRPs follow an asset approach to determine the business rescue value. The results also showed that the business, digital and relational acumen of the BRP is a major influencer in the business rescue value.Conclusion: The financial elements identified and substantiated in this study may serve as best practice guidance in the business rescue industry and lead to an expansion of the existing valuation theory.

Travel Stokvels, Leisure on Lay-by, and Pay at Your Pace Options: The Post COVID-19 Domestic Tourism Landscape in South Africa

As the world came to a relative standstill during the initial stages of the outbreak of the COVID-19 pandemic, with nearly all countries having enforced some kind of COVID-19 regulations, the global tourism economy was one of the hardest hit. Travel bans and border closures resulted in many tourism businesses having to enter business rescue or shut down indefinitely. This new economic climate forced the tourism economy to imagine a new reality and to consider a negotiation of its revival in a post-pandemic world. Coupled with the impact on tourism itself, the pandemic resulted in a subsequent economic crisis, which unarguably, impacted upon travel, particularly leisure tourism. The South African tourism sector is no exception and will need to explore several avenues in addressing this new status quo. With domestic tourism being a weighty component of many countries’ tourism economies, it serves as an important building block for the resurgence of the industry. This is especially the case in a time when uncertainties are particularly prevalent for the re-emergence of international travel. Therefore, domestic tourism in South Africa has been a key starting point as travel restrictions have slowly started to lift, a context, which has been highlighted in current debates amongst South African tourism stakeholders. This paper explores the potential opportunities for opening up tourism to cash-strapped South Africans by specifically addressing their savings and travel cultures and prospects for future travel. The paper presents a desktop review of the recent introduction of savings and payment schemes available to travellers in South Africa, with particular focus on travel stokvels, leisure on lay-by and pay at your pace options.

“Extraordinary Administration” for Business Rescue in Italy: Admission Requirements and Value Creation

Large Italian firms in financial distress are admitted to the business rescue procedure called “Extraordinary Administration” with a view to preserving the business as a going concern when two objective requirements are met: at least two hundred employees and debts not less than two-thirds both of total assets and revenues. This study examines whether these selection criteria are adequate to identify large firms in terms of value creation. The analysis is motivated by the idea that social utility in the rescue of large firms should not be justified only by the number of employees, but also by the worth of the goods and services created by the firms. The sample is made up of 1,581 Italian manufacturing firms and four subsamples were analyzed for the three year period 2015-2017 using a set of logistic regression models. Research findings show that highly leveraged firms eligible to go into “Extraordinary Administration” do not select large firms as measured by proxy variables that take into account value creation, such as total assets and/or revenues. On the other hand, hypothetical alternative selection criteria based on total assets and revenues identify large firms in terms of value creation but no statistical evidence was found to show how these firms are leveraged.