Title

Bankruptcy as a deliberate strategy: Theoretical considerations and empirical evidence

Publication Type

Journal Article

Publication Date

1993

Abstract

Bankruptcy and bankruptcy reorganizations have been identified as remedies for financial distress, but there is little agreement on their value to firms, managers, and the general economy. This paper provides a brief review of proposed bankruptcy strategies and some alternative views about their costs and benefits followed by an empirical study of the outcomes of 73 bankruptcies and subsequent reorganization efforts. The evidence suggests that there are few successful reorganizations, bankruptcy is a costly response to financial distress, and managerial choice in bankrupt firms is highly constrained by forces external to the firm. The diversity of stakeholder interests limits the value of global judgements about success or failure of bankruptcy strategies. Firm size dominates all other factors in predicting success in completing the reorganization process. Delayed filings primarily reflect failed efforts to avoid bankruptcy, not deliberate strategies. Reasons for the use of bankruptcy in spite of its high costs are discussed.

Keywords

Bankruptcy, business failure, financial distress, reorganization

Discipline

Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Strategic Management Journal

Volume

14

Issue

2

First Page

125

Last Page

135

ISSN

0143-2095

Identifier

10.1002/smj.4250140204

Publisher

Wiley

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