A Survey of Capital Reduction to Compensate the Deficit in Retained Earnings and its Impact on Financial Statements of Listed Companies in Thailand

Abstract

This study investigated the capital reduction to compensate the deficit in retained earnings of listed companies in the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) from 2001 to 2018. This study was conducted by a survey method of 77 companies. The study found that Thai-listed companies experienced three types of capital reductions: (1) reduction of par value (81.82% of 77 listed companies), (2) reduction of the number of shares (9.09% of 77 listed companies), and (3) a combination of reduction of par value and reduction of the number of shares (9.09% of 77 listed companies).

Most of the listed companies (81.82% of 77 listed companies) that decreased their capital to compensate for the deficit in retained earnings still had deficits in their financial statements. Results indicated that the average amount of remaining deficits was 26.44% of the deficit in the financial statements at the period of the board approval for capital reduction. According to Public Limited Companies Act (No.2) B.E. 2544 (2001), the listed companies can implement this law to reduce their deficits in retained earnings to zero or partially decrease it. However, this procedure is only an accounting method which not affect real performance of the listed companies; the aim of this law is to be another management tool to solve the crisis of the companies.

Moreover, after a year from the completion of capital reductions, listed companies had better financial ratios: Debt to Equity (D/E), Return on Assets (ROA), Earnings per Share (EPS). However, the study found that only 27.40% of listed companies were able to pay dividends to their shareholders.