The usefulness of aggressive retrenchment for firms in decline

Abstract

This dissertation tests the effect of retrenchment aggressiveness, which involves volume and time aggressiveness, on turnaround performance. Using three theoretical perspectives: the survivor syndrome perspective, the downward spiral view, and the threat rigidity perspective, a direct effect between time aggressiveness and volume aggressiveness on turnaround performance is hypothesised. Time aggressiveness is divided into two dimensions: how early retrenchment measures are initiated (timing) and how fast they are completed (speed). Simultaneously, a moderating effect of time aggressiveness on the relationship between volume aggressiveness and turnaround performance is studied. The data basis of this study is declining firms from the services industry in Northern America retrieved from the Compustat North America database in the time frame of 1990-2018. Using a matched-pair sampling technique, 85 firms with a successful turnaround were equally matched with an unsuccessful counterpart resulting in a final sample size of 170. The results point towards two significant findings. First, a volume-aggressive retrenchment strategy is only successful when focusing on the cost-side of the business, specifically on Selling, General and Administrative (SGA) costs. Second, the results indicate that turnaround performance is solely positively affected by the speed of retrenchment and not by its timing. This dissertation contributes to the novel literature combining the two research streams on aggressiveness and corporate turnaround. Particularly, support is provided for the importance to incorporate a time dimension in turnaround studies.

Date of Award	26 Apr 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Ferreira Reis (Supervisor)