Fostering SME survival through insolvency proceedings: a legitimacy perspective on retrenchment, age, and firm-specific distress

Rachid Achbah () and Marc Fréchet ()
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Rachid Achbah: University
Marc Fréchet: University Jean Monnet

Small Business Economics, 2024, vol. 63, issue 4, No 12, 1585-1614

Abstract: Abstract This study examines the interaction between insolvency proceedings and strategic variables and their relationship with firm survival. Unlike previous research, this study considers the firm’s legal status, including insolvency proceedings, and fills a gap in the literature by considering legal considerations in business studies. Adopting a legitimacy perspective, we employ a Cox proportional hazards model to construct a survival model based on a theoretical framework encompassing insolvency proceedings retrenchment, firm age, and causes of financial distress. Our sample consists of French SMEs facing financial difficulties. The findings reveal that initiating insolvency proceedings is negatively associated with firm survival. However, retrenchment of employees or assets during insolvency proceedings is associated with a higher likelihood of survival. Contrary to expectations, firm age showed a negative association with firm survival during the insolvency proceedings. Moreover, the study revealed a positive association between insolvency proceedings and firm survival in cases of firm-specific financial distress. This research provides new insights into the relationship between insolvency proceedings and firm survival.

Keywords: SMEs; Insolvency proceedings; Legitimacy; Retrenchment; Firm Survival (search for similar items in EconPapers)
JEL-codes: G33 K22 L25 L26 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11187-024-00874-7

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