Firm Performance and the Strategic Components of Bankruptcy Reorganization Plans

Abstract

We investigate the influence of bankruptcy reorganization plans on the recovery of distressed firms. Using qualitative comparative analysis (QCA), specifically, we perform an in-depth investigation of a set of reorganization plans submitted by publicly traded companies in Brazil. We find that the improvement in firm performance is positively related to a good diagnosis of the factors causing the crisis, a clear definition of the firm's resources, and a clear identification of the firm's competitive strengths. We also find that the absence of a good industry analysis is a critical condition for a reorganization plan to fail. However, the explicit mentioning of the firm's relevant market is negatively associated with the company's uplifting in crisis. We discuss the theoretical and managerial implications of these findings.Firm performance and the strategic components of bankruptcy reorganization plans 3 OPEN ACCESS

Factors influencing Brazilian sugar and ethanol refineries’ failure

“…The absence of the micro-level factors in the recovery plans is a challenge, but there may be a lack of willingness to report them on the judicial plans. This finding reinforces the need at the policy level to give judicial recovery plans a more strategic and less operational character if they are to drive more effective company recovery processes (Monteiro et al, 2020). When a refinery engages in a judicial recovery plan, its primary concern is identifying the macro-variables that can explain the failure.…”

“…Such an approach often leads firms not to consider the recovery plan as a strategic tool or to drive internal improvements. Conversely, using the recovery plan as a tool to drive best practices would allow new solutions to emerge that reduce the company’s debt, improve product sales and drive cost reduction (Monteiro et al, 2020). In any case, the absence of a micro-level dimension is a limitation of this study.…”

“…As for meso-factors influencing organisation failure, the literature has identified company age and size; location; associated organisational network; diversity in the composition of the board; hierarchy structure, the nature of the relationship with clients, suppliers and shareholders; resources (financial, physical and human); and organisational succession processes (Higashi et al, 2020). Monteiro et al (2020) emphasise the importance of an articulated examination of meso-level characteristics in evaluating organisational failures.…”

“…If these economic issues were not enough, the sector has also undergone several institutional changes. As a result of these external pressures, many Brazilian sugar and ethanol mills opted to be part of the judicial recovery processes to prevent bankruptcy and insolvency (Monteiro, Caleman, & Pongeluppe, 2020). This leads to our research question:…”

How Do Entrepreneurs Feel Bankruptcy?

“…When a firm goes for bankruptcy, it means they are either intended to cease their operations and agree to liquidate all their assets to pay back the creditors and suppliers or want to file for a restructuring bankruptcy, to restructure the entire business operations. Regarding restructuring bankruptcy, firms opt for this option only after convincing the creditors with their action plans that they will succeed in the future business operations (Monteiro et al, 2019). SMEs encounter several challenges in routine business to achieve its strategic advantage over others and build their competitiveness to develop a sustainable business operation.…”