Author(s): Cynthia B. Lloyd, Salma Ibrahim, Phyllis Y. Keys
Business managers contemplate multiple options when making informed operating and restructuring decisions. Firms in the US, even when not financially distressed, can seek court protection while reorganizing by filing for Chapter 11 bankruptcy for breathing room to restructure. Opportunity costs, risk shifting, corporate governance, and managerial motivations are important, however, financial reports rarely indicate whether or how such qualitative factors influence managers’ potential operational choices motivation to restructure. By adding proxies for such qualitative factors, including measures of perceivable incentives, pressures or threats leading to changes in a firm’s operational structure, creditor categories, and proxies of management’s reaction to such incentives, pressures or threats, we analyze the predictive value of examining management choices for forecasting the likelihood of successful corporate restructuring. Our results suggest that the examination of operational activities is essential to good decision-making by managers and external stakeholders alike. To the extent that policymakers, investors, creditors and other stakeholders would benefit from early detection of signs of the corporation’s intention to restructure, this study provides insights into factors associated with recovery after major corporate changes.