Abstract
A key assertion in the turnaround literature is that when survival is threatened, it is necessary to undertake asset and cost retrenchment strategies that stabilise
the performance decline and provide a base for survival and recovery. Correcting for methodological weaknesses in the literature, this study of Spanish SMEs
finds that retrenchment of inventory and employees is associated with liquidation. Furthermore, neither intangible asset nor tangible asset retrenchment is associated with survival. Only retrenchment of debt is associated with survival. These results challenge conventional wisdom on retrenchment in turnaround situations. Automatic, across-the-board retrenchment is not a universal panacea to achieve turnaround and should not be implemented as a reflex response to insolvency. Instead, managers of insolvent firms should focus on liquidity and operational improvements, which result in debt reduction. Great care should be taken with the need for, and the extent of, retrenchment in inventory and employees.
the performance decline and provide a base for survival and recovery. Correcting for methodological weaknesses in the literature, this study of Spanish SMEs
finds that retrenchment of inventory and employees is associated with liquidation. Furthermore, neither intangible asset nor tangible asset retrenchment is associated with survival. Only retrenchment of debt is associated with survival. These results challenge conventional wisdom on retrenchment in turnaround situations. Automatic, across-the-board retrenchment is not a universal panacea to achieve turnaround and should not be implemented as a reflex response to insolvency. Instead, managers of insolvent firms should focus on liquidity and operational improvements, which result in debt reduction. Great care should be taken with the need for, and the extent of, retrenchment in inventory and employees.
Original language | English |
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Pages (from-to) | 111–126 |
Number of pages | 16 |
Journal | Small Business Economics |
Volume | 57 |
Issue number | 1 |
Early online date | 3 Jan 2020 |
DOIs | |
Publication status | Published - Jun 2021 |
Keywords
- SMEs
- Turnaround
- Insolvency
- Retrenchment
- Bankruptcy.
- Survival
Profiles
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Naresh Pandit
- Norwich Business School - Institutional Lead - UPEN, Professor of International Business
- Marketing - Member
- Strategy and Entrepreneurship - Member
- ClimateUEA - Member
Person: Member, Research Group Member, Academic, Teaching & Research