Financial distress, restructuring and turnaround: evidence from Thai SMEs

Abstract

This study examines firstly whether there are significant differences in the financial characteristics of financially distressed and non-distressed SMEs in Thailand, and secondly, whether distressed SMEs can quickly turnaround once they enter into the court directed restructuring process. Building on both parametric and non-parametric tests and a good number of sample SMEs in both groups of firms, it provides evidence that the Thai financially distressed SMEs are significantly different from their non-distressed counterparts in terms of profitability, liquidity and leverage. Again, for the distressed SMEs that have entered into the court process of restructuring, turnaround is seemed to be a longer-term phenomenon rather than short-term, as the findings show weak signs of improvement in the financials of interest except a few. This implies that financial recovery and performance do not happen as quickly as expected after restructuring. These findings of the study have implications for an emerging economy such as Thailand for providing continued support and assistance that can ensure speedy financial recovery of distressed SMEs as well as insure the positive effect of being financially restructured firms for the economy.