Managing Financial Distress: Insight into the Dynamics of Insolvency Proceedings and Retrenchment in Small Businesses

Rachid Achbah ()
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Rachid Achbah: UL2 UFR SEG - Université Lumière - Lyon 2 - UFR de Sciences économiques et de gestion - UL2 - Université Lumière - Lyon 2, COACTIS - COnception de l'ACTIon en Situation - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne

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Abstract: This study delves into the complex landscape of business restructuring, focusing on the significant challenges posed by bankruptcy, particularly for small and medium-sized enterprises (SMEs). Retrenchment, a crucial strategy in existing literature, involves costcutting measures and employee downsizing, while insolvency proceedings provide a legal avenue for comprehensive financial restructuring. Using a bivariate probit model, our Analysis explores the interdependence of these strategies and their impact on firm survival. Drawing on a dataset from firms in the Rhône-Alpes region, the study reveals consistent negative associations between sales, profitability, and availability with the initiation of both insolvency proceedings and retrenchment. Supplier liabilities, on the other hand, exhibit a positive association with both strategies. The Analysis identifies shared explanatory variables, confirming the correlation between insolvency proceedings and retrenchment. Moreover, the study unravels a reciprocal causal relationship between these strategies, providing valuable insights for navigating the intricate landscape of business restructuring.

Keywords: Insolvency proceedings; Retrenchment; Restructuring; Bivariate probit; Seemingly unrelated bivariate probit (search for similar items in EconPapers)
Date: 2024-06-03
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Published in XXXIII conférence de l’AIMS, ESG UQAM, Jun 2024, Montréal (Québec), Canada

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04721041

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