This study aims to explore gaps and find solutions not covered by exiting literature to reduce information asymmetry impact on creditors’ decision concerning divestitures option within financial restructuring plan covering selection of assets to be divested, valuation of selected assets, existence of potential buyers, and achievability of the divestitures timeline.
The research was conducted based on qualitative approach and designed to adopt case study as methodology. Thus, two distressed investment companies considered as the largest in Kuwait were selected for the cases studies. Besides, data collection was structured using two techniques comprising documentary evidence to collect secondary data and semi structured interviews to collect primary data.
The results of this research indicate that there are gaps not identified by creditors during their review of the financial restructuring plans, and such gaps covered issues about the salability of the selected non-core assets in poor economic conditions with scarcity of cash resources. In addition, the findings show other gaps in relation to the validity and reliability of the valuation reports which were outdated and prepared based on management assumptions not verified by the hired advisors or by creditors in order to reduce information asymmetry.
This research contributes to existing literature in terms of identifying gaps for divestitures option in financial restructuring plans applied in Kuwait, identifying gaps in some of the solutions suggested by existing literature, and providing additional solutions to reduce information asymmetry between debtors and creditors. Besides, the findings of the current dissertation are limited to divestitures option in financial restructuring plans applied in Kuwait, and more research would be needed to explore the most favorable restructuring option to be recommended to creditors whether debt to equity swap or divestitures.Practical Implications
New methods were explored to reduce information asymmetry with debtors where creditors can assign due diligence team to review industry reports to build understanding of the market where assets subject to divestitures are functioning. Also, creditors should be the clients hiring at least two independent valuators to value these assets and to validate management assumptions.
This thesis tends to improve creditors review of divestitures option in restructuring plans to make the appropriate decision for debt settlement, and the results of this study contribute onto forming guidelines to cover unidentified gaps by creditors during their review.
Financial restructuring, information asymmetry, divestitures, financial distress.
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