Insolvency administration as a strategic response to financial distress

Author:

Routledge James1,Morrison David2

Affiliation:

1. Faculty of Business, Bond University, Gold Coast, Queensland, Australia

2. TC Beirne School of law, The University of Queensland, St. Lucia, Queensland, Australia

Abstract

This study considers whether the strategic decision to enter voluntary administration (VA) rather than to trade the company’s business for a protracted period of declining performance is systematically related to the effective monitoring of management decision-making. Analysis that tests the association between strategic entry into VA and the likelihood that a company will reorganize in VA is also presented. We find about half of the companies in our sample entered VA as a strategic choice. The likelihood of strategic entry to VA increased with the proportion of independent board directors, the existence of an audit committee and a dual CEO/chair board structure. Subsequent analysis of reorganization outcomes suggests that strategic entry into VA improves prospects for a successful reorganization.

Publisher

SAGE Publications

Subject

General Business, Management and Accounting

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