Corporate financial distress and turnaround strategies: An empirical analysis

Extant research on corporate turnaround from financial distress has prescri bed a range of strategies to effect corporate recovery. However, no large s ample study has examined the general applicability and effectiveness of the se strategies. We set out to test the effectiveness of strategies and ident ify the underlying factors of effectiveness the impact of timing, intensity and implementation of strategies on corporate recovery. We examine a sampl e of 166 potentially bankrupt UK firms drawn from 1985 to 1993 and track th eir turnaround strategies for a period of three years from distress. These strategies include operational, asset, managerial and financial restructuri ng. Our results show recovery and non-recovery firms adopt very similar set s of strategies, and managers of non-recovery firms restructure more intens ively than recovery firms. Nevertheless, non-recovery firms seem far less e ffective in strategy implementation than their recovery counterparts. Where as recovery firms adopt growth-oriented and external-market focused strateg ies, non-recovery firms engage in fire-fighting strategies.