A study on the mechanisms of shareholders’ equity adjustment in bankruptcy reorganization of listed companies

• Main Author: ZHANG, Yongliang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: listed companies; bankruptcy reorganization; shareholders’ equity adjustment; and balance of interests; Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/etd_coll/442; https://ink.library.smu.edu.sg/context/etd_coll/article/1438/viewcontent/GPBA_AY2016_DBA_ZHANG_Yongliang.pdf
• Institution: Singapore Management University

In recent years, amid cyclical macroeconomic fluctuations, national economic slowdown, economic restructuring, and over-expansion of some enterprises, a number of listed companies have faced serious debt and operational challenges, many of which are worthy of keeping afloat. From June 1, 2007 when the Enterprise Bankruptcy Law of the People’s Republic of China came into effect, up to the end of 2021, a total of 93 listed companies in China have gone through bankruptcy reorganization, one of the major means to save the listed companies in distress. The bankruptcy reorganization of listed companies, by its nature, is a process of game and balance among stakeholders. Such game and balance are reflected in almost all aspects including debt adjustment and settlement, shareholders’ equity adjustment, and business plans. The adjustment of shareholders’ equity is the adjustment and redistribution among creditors, investors and original shareholders of the shares of a reorganized listed company. Since the reorganization of listed companies often requires debt-to-equity swaps to offload huge debts and the introduction of reorganization investors with shares as consideration, the adjustment of shareholders’ equity, which can also reflect the contents of debt adjustment and settlement as well as business plans, is the focus of the game and balance of interests of stakeholders in the bankruptcy reorganization. It determines the actual effect of the reorganization. The bankruptcy reorganization of listed companies in practice shows that due to factors such as inconsistent, conflicting interest claims of all stakeholders at the initial stage, some listed companies have missed the opportunity to get out of trouble through bankruptcy reorganization, exposing themselves to the risk of delisting. This in turn has hurt the employment, taxation, and financial stability of the regions where they locate. In addition, a number of listed companies failed to balance the interests of all stakeholders from the long-term perspectives including financial returns for creditors and investors and the going concern value of listed companies; with such issues as unreasonable pricing of shares, neglected the reorganization value, and failure to avoid the risk of delisting in adjusting shareholders’ equity, their reorganization has proven weaker-than-expected. This dissertation describes the current situation and issues of shareholders’ equity adjustment in bankruptcy reorganization of listed companies in practice. The author proposes a shareholders’ equity adjustment mechanism, aiming to solve the issues in practice by drawing on successful cases and the author’s practical experience. This dissertation argues that an effective shareholders’ equity adjustment mechanism should avoid delisting risks, enhance the value of reorganization, and focus on share distribution on a balance of interests basis. Such a mechanism is designed to reasonably distribute reorganization resources of listed companies, maximize the interests of all stakeholders, achieve long-term reorganization effect, and realize the integration of economic and social interests.