Lion Group Essay

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APPENDIX 11 Corporate Restructuring and Its Wealth Effects: The Case of Lion Group Abstract The case study evolves around four announcements related to a specific corporate restructuring proposal. The primary reason for the corporate restructuring is to restructure the debt of six companies, Lion Industries (LICB), Silverstone (SCB), Amsteel Corp Berhad (ACB), Lion Corporation (LCB), Lion Forest Industries (LFI) and Lion Diversified Holding Berhad (LDH). The track record of the companies reveal that these companies have been heavily levered causing them to be financially risky and therefore, highly sensitive to any economic shocks, let alone such a fatal financial typhoon like the 1997 economic crisis. As at the end of the study period on June 30, 2003, that is, more than three years after the initial announcement of the proposed corporate restructuring, the plan has yet to complete. Nonetheless, the present study manages to produce some interesting results. By applying the common event-study approach, the results indicate that information about the restructuring plan has been significantly conveyed to the market in each restructuring announcement. Generally, the market regards all announcements in event window (-1,+1) unfavorably. 2.0 THE COMPANIES’ FINANCIAL BACKGROUND 2.1 THE COMPANIES’ FINANCIAL HISTORY The selected financial data in this study are selected based on its theoretical relationships with the probability of firm to meet its debt-service obligations. Ofek (1993) and Baek, et al. (2001) used two basic variables, capital structure and profitability, when examining the responses of financially distressed firms to poor performance. The capital structure characteristics used by Ofek (1993) are adopted including leverage and liquidity ratios. Leverage is measured by debt ratio and gearing ratio. Liquidity is measured by current

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