From Distress to Exit: Determinants of the Time to Exit

Posted: 24 Dec 2010

See all articles by Sofie Balcaen

Sofie Balcaen

Ghent University - Department of Accountancy and Corporate Finance

Sophie Manigart

Vlerick Business School; Ghent University

Hubert Ooghe

Vlerick Business School; Ghent University - Department of Accountancy and Corporate Finance

Date Written: December 24, 2010

Abstract

This paper analyses the duration of the time to exit of distressed firms, differentiating between court driven 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 mature firms, the majority being privately held. The results highlight that slack resources have an opposite effect on the timing of court driven exits and voluntary liquidations. On the one hand, high levels of available and potential slack increase the time to court driven exit, as they allow distressed firms to postpone an impending court driven exit. On the other hand, high available slack resources shorten the time to voluntary liquidation, since they make voluntary liquidation easier. Further, a high level of stakeholder dependence increases the time to exit after distress, whether the firm exits through voluntary liquidation or through a court decided exit. This is explained by the fact that stakeholder dependence increases the complexity of the exit decision and the exit procedure.

Keywords: firm exit, distress, court driven exit, voluntary liquidation, slack resources, stakeholders

JEL Classification: G33, G34

Suggested Citation

Balcaen, Sofie C. F. and Manigart, Sophie and Ooghe, Hubert, From Distress to Exit: Determinants of the Time to Exit (December 24, 2010). Journal of Evolutionary Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1730602

Sofie C. F. Balcaen

Ghent University - Department of Accountancy and Corporate Finance ( email )

Bedrijfsfinanciering (RUG)
Kuiperskaai 55 E
Ghent, B-9000
Belgium

Sophie Manigart (Contact Author)

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

Hubert Ooghe

Vlerick Business School ( email )

Reep 1
B-9000 Gent
Belgium

Ghent University - Department of Accountancy and Corporate Finance

Kuiperskaai 55 E
B-9000 Ghent
Belgium

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