Strategic Bankruptcy

No Thumbnail Available
Issue Date
Journal Title
Journal ISSN
Volume Title
Although there exists an extensive body of research on strategic bankruptcy, the definition and evidence about whether such filings really preserve and/or create value – even as a paradoxical survival mechanism – remain ambiguous. The aim of the study is to investigate whether strategic bankruptcy and financial distress affect employment retention – through the lenses of real options and debt overhang theory. Using a sample of bankruptcies in the period 2012 until 2015, employment retention post-bankruptcy was evaluated as a consequence of the bankruptcy mechanism and the de severity of financial distress pre-bankruptcy. The results indicate that the type of bankruptcy (either strategic or non-strategic filing plays an important role in determining the employment retention rate after bankruptcy. An additional Robust Covariance Matrix Estimation analysis was completed which revealed that the severity of financial distress pre-bankruptcy also plays a marginal role in the employment retention rate post-bankruptcy. Therefore, strategic bankruptcy in its current form may be the best – and only – real option against uncooperative and opportunistic stakeholders in the absence of statutory composition legislation. 1 As to timing of bankruptcy filing, the results indicate that accelerated filing is the preferred option when bankruptcy becomes unavoidable. However, the capital advice to managers remains to restructure and recover before attempting bankruptcy restructuring as the severity of both direct and indirect bankruptcy costs should not be underestimated.
Faculteit der Managementwetenschappen