Strategy and Bankruptcy: An Exploration in to Organizational Death

Abstract

Because an organizations existence is a prerequisite for its accomplishments, one would expect that researchers would be intensely interested in those factors which could lessen the likelihood of organizational decline and failure. Yet, until recently little research appeared regarding this topic and very little of it focused on the effectiveness of strategy on the likelihood of corporate bankruptcy. This research will review some of the strategy variables and investigate avenues that are most likely to hold the greatest potential for altering a firm’s likelihood of failure. An exploratory model was developed to study the effects of corporate and business level strategies, as well as cooperative interorganizational and financial strategies. A consistent, significant positive relationship was discovered between survival and a firm’s number of interorganizational linkages in the form of director interlocks. A consistent, significant negative relationship was discovered between survival and a firm S financial leverage. It was also discovered that as failing firms move closer toward bankruptcy they exhibit a degree of isomorphism with their surviving counterparts regarding certain interorganizational arrangements. That such changes in the interorganizational arrangements of failing companies do little to help save them suggests that turnaround efforts must start early in a firm 2 decline of it is to overcome the substantial amount of organizational inertia present in the corporation.