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Success and failure in turnaround attempts. An analysis of SMEs within the Finnish Restructuring of Enterprises Act

Author

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  • Nicholas Collett
  • Naresh R. Pandit
  • Jukka Saarikko

Abstract

This study focuses on the success and failure of small- and medium-sized enterprises (SMEs) attempting turnaround within Finland's Restructuring of Enterprises Act. In doing so, it aims to shed light on (1) how successful and unsuccessful SME turnarounds differ and (2) the effectiveness of the Finnish regime in promoting SME recovery. A preliminary review of the turnaround literature revealed 23 decline and recovery variables. Data on these variables were collected via a questionnaire sent to the administrators of failing SMEs that entered restructuring. Data from the sample of 228 returns were subjected to factor and logit analysis. The factor analysis finds four decline categories : poor management, high debt in adverse macroeconomy, an adverse microeconomic environment and one-off causes of decline. It also finds three recovery action categories : management change and cash generation, market reorientation and cost-cutting and retrenchment. The logit analysis finds that one-off causes of decline, management change and cash generation and cost-cutting and retrenchment are more important in successful turnarounds and that poor management and an adverse microeconomic environment are more important in unsuccessful turnarounds. The study also finds that the Finnish Restructuring of Enterprises Act has resulted in good rates of business survival. Fifty-four per cent of SMEs in our sample turnaround and survive.

Suggested Citation

  • Nicholas Collett & Naresh R. Pandit & Jukka Saarikko, 2014. "Success and failure in turnaround attempts. An analysis of SMEs within the Finnish Restructuring of Enterprises Act," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 26(1-2), pages 123-141, April.
    • Handle: RePEc:taf:entreg:v:26:y:2014:i:1-2:p:123-141
    DOI: 10.1080/08985626.2013.870236
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    Cited by:

    1. Dragos Ilie, 2015. "Credits and Bank Guarantee Letters in Entrepreneurship Development During Crisis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 17(38), pages 212-212, February.
    2. Sebastian Ion Ceptureanu, 2015. "Young Smes Insolvency.Theoretical Considerations And Policy Actions," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 120-126.
    3. Cepec, Jaka & Grajzl, Peter, 2020. "Debt-to-equity conversion in bankruptcy reorganization and post-bankruptcy firm survival," International Review of Law and Economics, Elsevier, vol. 61(C).
    4. Nikolić Nenad & Jovanović Ivan & Nikolić Đorđe & Mihajlović Ivan & Schulte Peter, 2019. "Investigation of the Factors Influencing SME Failure as a Function of Its Prevention and Fast Recovery after Failure," Entrepreneurship Research Journal, De Gruyter, vol. 9(3), pages 1-21, July.
    5. Mark Ojeme & Ogechi Adeola, 2023. "The relationship between business and bank: the role of perceived injustice in complaint behaviour," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(2), pages 396-409, June.
    6. Luminița Gabriela Istrate, 2019. "The Role of Credits and Bank Guarantee Letters in Financing Trading Companies," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 601-606, August.
    7. Manuel Rico & Naresh R. Pandit & Francisco Puig, 2021. "SME insolvency, bankruptcy, and survival: an examination of retrenchment strategies," Small Business Economics, Springer, vol. 57(1), pages 111-126, June.
    8. Jaka Cepec & Peter Grajzl, 0. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 0, pages 1-27.
    9. Jaka Cepec & Peter Grajzl, 2021. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 57(1), pages 555-581, June.
    10. Edmundo Escrivão Filho & Alexandre Farias Albuquerque & Marcelo Seido Nagano & Luiz Adalberto Philippsen Junior & Jair de Oliveira, 2017. "Identifying SME mortality factors in the life cycle stages: an empirical approach of relevant factors for small business owner-managers in Brazil," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 7(1), pages 1-15, December.
    11. Alexandre Farias Albuquerque & Edmundo Escrivão Filho & Marcelo Seido Nagano & Luiz Adalberto Philippsen Junior, 2016. "A change in the importance of mortality factors throughout the life cycle stages of small businesses," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 6(1), pages 1-18, December.
    12. A‐Reum Jung & Do‐Jin Jung, 2022. "The effects of size‐dependent policy on the sales distortion reporting: Focusing on the discretionary sales management of Korean SMEs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 301-320, March.
    13. Mincheol Choi & Chang‐Yang Lee, 2020. "The Peter Pan syndrome for small and medium‐sized enterprises: Evidence from Korean manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 426-445, April.
    14. Angelo Castaldo & Rosanna Pittiglio & Filippo Reganati & Domenico Sarno, 2023. "Access to bank financing and start‐up resilience: A survival analysis across business sectors in a time of crisis," Manchester School, University of Manchester, vol. 91(3), pages 141-170, June.
    15. Neba Bhalla & Inderjit Kaur & Rakesh Kumar Sharma, 2022. "Examining the Effect of Tax Reform Determinants, Firms’ Characteristics and Demographic Factors on the Financial Performance of Small and Micro Enterprises," Sustainability, MDPI, vol. 14(14), pages 1-18, July.
    16. Dorel Mihai VLAD, 2021. "Brief Considerations regarding the Enforceability of the Letter of Bank Guarantee," RAIS Journal for Social Sciences, Research Association for Interdisciplinary Studies, vol. 5(2), pages 38-42, November.
    17. Isaac Mabhungu & Breggie Van Der Poll, 2017. "A Review of Critical Success Factors Which Drives the Performance of Micro, Small and Medium Enterprises," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(6), pages 151-151, May.
    18. Angelo Castaldo & Giuliana De Luca & Berardino Barile, 2021. "Does Initial Access To Bank Loans Predict Start‐Ups' Future Default Probability? Evidence From Italy," Contemporary Economic Policy, Western Economic Association International, vol. 39(1), pages 83-106, January.
    19. Alexander Kücher & Stefan Mayr & Christine Mitter & Christine Duller & Birgit Feldbauer-Durstmüller, 2020. "Firm age dynamics and causes of corporate bankruptcy: age dependent explanations for business failure," Review of Managerial Science, Springer, vol. 14(3), pages 633-661, June.

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