Financial Distress, Nonperforming Loans and Small and Medium-Sized Enterprises in Thailand: An Intertemporal and a Cross-Sectional Analysis

Abstract

Many parties such as creditors, investors, auditors, financial institutions, employees, and customers are affected by business failure both directly and indirectly. When a business with financial problems is not able to pay its financial obligations, the business may be driven into the situation of becoming a non-performing loan business, and if the problems cannot be solved, the business may become bankrupt, and be forced to close down. Such business failures also negatively influence other businesses. In this study, the characteristics of the Thai financially distressed small and medium-sized enterprises (SMEs) both one year before and one year after going through the Thai Bankruptcy Court, the Central Bankruptcy Court (CBC) and the Civil Court process have been explored in order to understand the changes over time, together with the exploration of the differences between financially distressed and non-distressed SMEs, the differences between financially distressed and non-financially distressed large firms, and finally the differences between non-financially distressed SMEs and large companies. From the result, the financial profile of distressed SMEs did not show a statistically significant difference after they went through the Court process and received assistance through debt restructuring. However, this result did show evidence of an improvement of some variables. It was found that distressed SMEs had less current liabilities and interest expense burdens after they had gone through the Court process. This would support distressed SMEs to restore their businesses under the assistance of Court process. This study also found that business size does matter regarding the rate of interest charged by outside financial institutions with SMEs being charged a higher interest rate than large firms.