Case Study On Expansion Failure Of NJTC

Expansion as one of the important strategic decisions of enterprises is an effective way for enterprises to become bigger and stronger.Some enterprises through the expansion discover a new profit growth point and improve the comprehensive strength of enterprises.However,there are many enterprises because of excessive blind expansion into financial difficulties or even decline.NJTC is such an example of the expansion of failure.This company went through four years of loss finally turn into the first case of state-owned enterprises to withdraw from the market.NJTC is short for“NANJING TANKER CORPORATION”,engaged in offshore oil transportation.It is a subsidiary under SINOTRANS&CSC HOLDINGS CO.,LTD,a large state-owned enterprise.Under the call of the national policy,NJTC began a large-scale expansion of capacity since 2007,even reverse the industry cycle and ignore risk management.Blind expansion lead the enterprise to four consecutive years of losses,finally delisted from the Shanghai Stock Exchange in June 5,2014,become the first case of central enterprises delisting.Enterprise expansion decision should be combined with the actual situation of enterprises,and on the basis of full consideration of internal and external factors.However,people are not completely rational.Also,the decisions made by managers are not all reasonable.Many domestic and foreign scholars have found that,overconfidence is an important reason that leads to the manager’s irrational.Under the influence of overconfidence,the manager’s decision tends to be radical,thus resulting in the distortion of investment and financing decisions.This paper uses Managerial Overconfidence Theory,through case analysis to derive and summarize the process of NJTC from expansion to failure.The main content of this paper includes two parts: theoretical analysis and case analysis.The theoretical analysis part summarized the research findings about managerial overconfidence and enterprise expansion and elaborated the basic connotation of the enterprise expansion theory and the managerial overconfidence theory.Based on the above theory,the case analysis part carried out a case analysis of the expansion failure of NJTC.First analyzed the expansion process of NJTC and the financial consequences it brought.Then explained the reasons for the failure of the expansionfrom the perspective of managerial overconfidence,first verified the existence of managerial overconfidence in NJTC via several methods,then analyzed the Cause of production and Influence path to enterprise expansion failure.Summarize the above theoretical analysis and case analysis,this paper draws the following conclusions: the main reason of the failure of NJTC is managerial overconfidence,and this is related to the imperfection of the corporate governance structure.As the first delisting state-owned enterprises,as well as the first dslisting company since the new delisting regulations put into practice,the lesson it left is profound.Finally,this paper summarized the revelation this case left behind to other companies and put forward some suggestions to avoid these problem.The research of this paper not only provides a new evidence for the Managerial Overconfidence Theory,but also enriches its practical foundation,and has practical significance for enterprise management.