1 Financial Distress: Lifecycle and Corporate Restructuring

Lifecycle theory suggests the unique firm lifecycle characteristics of birth, growth, maturity, and decline and how these characteristics affect the decisions a firm makes, especially in situations such as financial distress and the threat of bankruptcy. However because of these lifecycle characteristics, when firms are faced with distress, managers may have limited restructuring options. We examine how lifecycle characteristics affect the restructuring strategies used by firms in financial distress such as: managerial, operational, asset and financial strategies. We find evidence that distress firms ’ access to different types of restructuring strategies is limited by the lifecycle stage they are in. For example, mature firms replace top level management while growth, mature and decline firms reduce dividend payments and raise funds from external sources. Birth firms on the other hand are least able to adopt restructuring strategies when in distress