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Abstract
A considerable body of research aims to discriminate between companies with the potential to stem decline, or recover from financially distressed conditions, from those which will ultimately fail. The literature spans a number of academic disciplines and embraces theorising, case studies and anecdote. Even so much confusion remains regarding the circumstances where recovery is feasible, and those factors and strategies likely to facilitate such recovery. This paper reviews this literature by focusing on the turnaround decision, the process and problems of reorganization and the probability of its success. Categorization of studies centres on the turnaround process to facilitate the generation of an analytical overview of findings with regard to alternative strategies which are a precondition for success. The paper concludes with a future research agenda embracing an alignment of strategy, implementation, and the sources of financial distress, together with an extended scope for turnaround studies.
Keywords: Distress, turnaround, recovery
Introduction
Voluntary administration legislation allows companies to reorganize their affairs and make arrangements with creditors to the point where they can continue trading. The survival of an ailing business, or at worst improved returns, by avoiding immediate liquidation can be extremely beneficial to stakeholders. However, this legislation currently also provides incentives to prolong the existence of non-viable companies, so that the gap between the incidence of 'financial distress' and the eventual 'corporate death' has become increasingly complex. Efficient managerial decision making can give a company the opportunity to survive, but some organizations will be beyond help, and it is important that we can avoid unnecessary time and expense by distinguishing between the two. The following review of current turnaround literature categorises, summarises and compares the analyses and findings of important studies in this field.
The Turnaround Decision
Routledge and Gadenne (2004) recognise the importance of the role of decision-makers, their behaviours and their relationship with information cues. They develop statistical models to clarify and investigate these issues. Their first step was to examine the 'reorganization event', the actual decision as to whether a company should set about reorganization or decide to liquidate as soon as it enters voluntary administration. Routledge and Gadenne recognise the work of Bulow and Shoven (1978) and White (1980, 1983 and 1989), who demonstrate the importance of information to...