A survey on corporate turnround response by financially distressed companies quoted at the Nairobi stock exchange.
Abstract
Firms that are experiencing financial distress take one action or another in order to turn
around their performance. This study sought to find out what turnaround strategies are
taken by companies hen faced by financial distress. The financially distressed companies
generally take actions that are aimed at reducing costs e.g. laying off employees, asset
sales and dividend cuts or take actions that are aimed at increasing revenue generation
e.g. asset acquisitions in order to improve efficiency. In severe cases of financial distress
a company may opt or be forced into liquidation through bankruptcy proceedings.
The Kenyan economy under the period of review had mixed results of growing and
declining presumably as a result of among others, the global economic crises, the post
election violence, loss of investor confidence at the NSE and increased inflation. Thus the
need to establish the restructuring strategies the financially distressed companies took in
order to turnaround their performance.
This study carried out a survey of the companies that were listed for the entire period of
the study(2002-2008). Performance of the companies was established by conducting the
Z score analysis on each of the companies. The Z score analysis identified 8 companies
has having been financially distressed at one year or another during the period of the
study.
The survey found out that employee layoff was the most preferred course of action being
carried out by 63% by the companies. Asset restructuring was the second most preferred
turnaround strategy being carried out by 50% of the companies. Debt restructuring and
top management change were the least preferred turn around strategies each one of them
being taken by one company each.
The study also found out that, in the year of distress the restructuring strategies are more
intensified and are carried out less intensively in the subsequent years after distress. This
may is presumably because of reducing the immediate liquidity problems being faced by
the firm.
Citation
Master of business administrationPublisher
University of University School of Business