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From Distress to exit: determinants of the time to exit

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  • 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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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. 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.

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