Predictors and the effect of earlier entry into business rescue

Abstract

For companies in distress, the option of business rescue, as an alternative to liquidation, is "the difference between resuscitating your business and burying it" (Olivier, 2014, p. 30), business rescue provides a lifeline for distressed companies heading toward failure. To ensure South African business take full advantage of this lifeline, the research sought to determine the applicability of turnaround literature on business rescue in South Africa through empirically testing the applicability of Z scores on Johannesburg Stock Exchange listed companies, which had entered into business rescue, as a predictor of the outcome of the business rescue process. Subsequently, the research examined the relationship between earlier entry into business rescue and the outcome of the business rescue process. The research took the form of quantitative research and examined the correlation between Z scores and the outcome of business rescues and the differences in group means of Z scores over fixed time periods prior to entry into business rescue. The initial sample for testing correlations consisted of twelve firms, which was later reduced to eleven, for the difference in group means testing. The research established a statistically significant, strong, positive correlation between the Altman Z score and the outcome of business rescue. This correlation was then used to examine the inter group differences between the Z score at entry into business rescue and periods prior to entry into business rescue. There were significant differences in Z score at eighteen months and at twenty-four months prior to entry into business rescue. Combining these findings the research is able to conclude that earlier entry into business rescue will lead to significantly better results in a business rescue process.