Review of Literature

Topics: Restructuring, Financial services, Bankruptcy Pages: 7 (1742 words) Published: September 14, 2013
Financial Restructuring and Its Impact On Corporate Performance In India

CHAPTER – 2 LITERATURE REVIEW

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Financial Restructuring and Its Impact On Corporate Performance In India

LITERATURE REVIEW

Finance is the life blood of business. A unit may fall sick because of a major lubricant i.e., finance. There are various mechanisms available to a firm for revival. Financial Restructuring is a favoured mechanism for firms in red. Does financial restructuring help in improving the financial performance of a firm? An attempt has been made in this Chapter to undertake extensive literature review in this area both in National and International context.

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Financial Restructuring and Its Impact On Corporate Performance In India

2.1

IN THE INDIAN CONTEXT  Pradeep Khandwala (1988) in his research confirmed that the major cause of sickness is inefficient management. External causes such as labour and competitions are essentially secondary factors although they are primary in particular instances. As per the said study, the prime responsibility for preventing sickness obviously rest with the units and their management. However, Government and financial institutions/ banks have major responsibility of taking incipient sickness and preventing it which includes careful project appraisal, continuous monitoring of units especially during project implementation, professional and speedy and coordinated institutional response of the problems of the units, installation of required systems at the unit and incentive for remaining healthy units and disincentives for actions contributing to sickness.  M.S. Narayanan (1994) examined the performance of BIFR by analyzing 472 cases disposed of by BIFR during 1987-1991.The study attributed the prolonged decision making process of BIFR, its nature of power which are more of a persuasive than of directive and to the approach of respective state governments as the prominent stake holder. The study opined that BIFR may be viewed as successful institution by evaluating and apprehending its performance in terms of disposal of cases that have been successfully survived.  Reena Aggarwal (1999) analyzed the market performance of 131 sample firms emerging from bankruptcy during 1980 to 1993. The study was mainly based on the controlled firm approach indicated that firms emerging from bankruptcy generated abnormal returns varying from 24.6% to 138.8% depending on various expected returns models.  Rahel Falk (2005) studied the sickness in the Indian manufacturing industry and tested the theoretical model which has addressed the political economy of industrial sickness in India. According to this study 23

Financial Restructuring and Its Impact On Corporate Performance In India

politicians benefit from, and accordingly pay for sickness. More so he has concluded that sickness law certainly provides several ways for the firm/stake holders to find advantages in sickness and thereby to get rid of their financial responsibility. 

The study by Rosemary and Omkarnath (2006) documented the trends and patterns of industrial sickness during pre and post reform period and critically evaluated the performance of BIFR, in line with changed policy framework. The study revealed that the massive sickness in SSI sector during pre reform period but it has shown significant reduction during the post reform period except a spurt during 1997 due to recession. The study also found out that there has been a significant rise in the sickness of non SSI units after recession in 1997. The study further observed that introduction of SARFAESI Act 2002 gives exclusive rights to the banks regardless of reference to BIFR and has undermined the role of BIFR in reorganizing the viable industrial units which in turn, has exposed that a structural change in BIFR function is needed.



Surendra Komera and Jijo Lukose (2009), undertook an empirical analysis of post bankruptcy performance. They have examined...
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