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From Distress to exit: determinants of the time to exit

Author

Listed:
  • Balcaen, S.
  • Manigart, S.
  • Ooghe, H.

    (Vlerick Leuven Gent Management School)

Abstract

This paper analyses the duration of the time to exit of distressed firms, differentiating between involuntary exits (mainly bankruptcies) and voluntary liquidations. It examines how long firms survive after initial signs of economic distress. The study is conducted on an extensive dataset of 5,233 Belgian distress-related exits of non-starting firms, the majority being privately held. The results highlight that slack resources have an opposite effect on the timing of involuntary exits and voluntary liquidations. On the one hand, high levels of available and potential slack increase the time to involuntary exit, as they allow distressed firms to postpone an impending involuntary exit. On the other hand, high available slack resources shorten the time to voluntary liquidation as they make voluntary liquidation easier. Further, a high level of stakeholder dependence increases the time to exit after distress, whether the firm exits through a voluntary or through an involuntary procedure. This is explained by the fact that stakeholder dependence increases the complexity of the exit decision and the exit procedure.

Suggested Citation

  • Balcaen, S. & Manigart, S. & Ooghe, H., 2009. "From Distress to exit: determinants of the time to exit," Vlerick Leuven Gent Management School Working Paper Series 2009-12, Vlerick Leuven Gent Management School.
    • Handle: RePEc:vlg:vlgwps:2009-12
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    4. Xavier Brédart & Eric Séverin & David Veganzones, 2021. "Human resources and corporate failure prediction modeling: Evidence from Belgium," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(7), pages 1325-1341, November.
    5. Peng XU, 2021. "Population Aging and Small Business Exits," Discussion papers 21091, Research Institute of Economy, Trade and Industry (RIETI).
    6. Stef, Nicolae & Zenou, Emmanuel, 2021. "Management-to-staff ratio and a firm's exit," Journal of Business Research, Elsevier, vol. 125(C), pages 252-260.
    7. Jaka Cepec & Peter Grajzl & Barbara Mörec, 2022. "Public cash and modes of firm exit," Journal of Evolutionary Economics, Springer, vol. 32(1), pages 247-298, January.
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    9. Jenkins, Anna & McKelvie, Alexander, 2017. "Is this the end? Investigating firm and individual level outcomes post-failure," Journal of Business Venturing Insights, Elsevier, vol. 8(C), pages 138-143.
    10. Shima Amini & Sofia Johan & Eilnaz Kashefi Pour & Abdulkadir Mohamed, 2023. "Employee Welfare, Social Capital, and IPO Firm Survival," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2174-2204, November.
    11. Richard Gentry & Clay Dibrell & Jaemin Kim, 2016. "Long–Term Orientation in Publicly Traded Family Businesses: Evidence of a Dominant Logic," Entrepreneurship Theory and Practice, , vol. 40(4), pages 733-757, July.
    12. Giovanni Marin & Marco Modica, 2019. "The Survival of Italian Individual Firms to Local Demand Shocks During the Great Recession," SEEDS Working Papers 0119, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2019.
    13. Karlien Coppens & Mirjam Knockaert, 2022. "Committed to the venture or the family? A study of entrepreneurial persistence in distressed ventures," Small Business Economics, Springer, vol. 58(1), pages 263-280, January.
    14. Terjesen, Siri A. & João Guedes, Maria & Patel, Pankaj C., 2016. "Founded in adversity: Operations-based survival strategies of ventures founded during a recession," International Journal of Production Economics, Elsevier, vol. 173(C), pages 161-169.
    15. Li Dai & Lorraine Eden & Paul W. Beamish, 2023. "The timing and mode of foreign exit from conflict zones: A behavioral perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(6), pages 1090-1104, August.
    16. Jenkins, Anna S, 2021. "Relief and exploration after firm failure: Taking into account pre-failure experiences to understand post-failure responses," Journal of Business Venturing Insights, Elsevier, vol. 15(C).
    17. Giovanni Marin & Marco Modica, 2021. "Local demand shocks and firms' survival: An application to the Italian economy during the Great Recession," Papers in Regional Science, Wiley Blackwell, vol. 100(3), pages 745-775, June.
    18. Priyambada Gupta, 2019. "Firm Survival through Semi-Exits: The Case of Indian Registered Manufacturing," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 148-168.
    19. Balcaen,S. & Buyze, J. & Ooghe,H., 2009. "Financial distress and firm exit: determinants of involuntary exits, voluntary liquidations and restructuring exits," Vlerick Leuven Gent Management School Working Paper Series 2009-21, Vlerick Leuven Gent Management School.
    20. Sofie Balcaen & Sophie Manigart & Jozefien Buyze & Hubert Ooghe, 2012. "Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A," Small Business Economics, Springer, vol. 39(4), pages 949-975, November.
    21. Yamakawa, Yasuhiro & Cardon, Melissa S., 2017. "How prior investments of time, money, and employee hires influence time to exit a distressed venture, and the extent to which contingency planning helps," Journal of Business Venturing, Elsevier, vol. 32(1), pages 1-17.
    22. Stef, Nicolae & Bissieux, Jean-Joachim, 2022. "Resolution of corporate insolvency during COVID-19 pandemic. Evidence from France," International Review of Law and Economics, Elsevier, vol. 70(C).
    23. Diego Useche & Sophie Pommet, 0. "Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms," Small Business Economics, Springer, vol. 0, pages 1-21.

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