Dissertation: Reorganization – a slow path to go bankrupt?

According to Eija-Leena Kärkinen's doctoral dissertation, most of the firms go bankrupt during reorganization.
Eija-Leena Kärkinen väittelee perjantaina 9. marraskuuta Vaasan yliopistossa. Kuva: Riikka Kalmi

– The purpose of reorganization is to turn around a firm, but it seems that by using the current methods firms don’t become viable, says Kärkinen who will defend her dissertation at the University of Vaasa.

Some firms go bankrupt already before a reorganization plan is confirmed and other ones go bankrupt when implementing their reorganization plans.

The findings from Kärkinen’s dissertation show that there is not only one type of firms that go bankrupt during reorganization. The firms that fail during reorganization differ from each other in terms of financial situation already before reorganization and during it.

– Previous belief was that only certain types of firms fail in reorganization, but according to my results, the firms that fail differ from each other, states Kärkinen.

Reorganization plans are often too superficial

Reason for failed reorganizations may be the reorganization plans prepared to turn around the firms. The plans may concentrate too much on the financial situations of firms and the reasons behind the failure may not be considered.

– Many times the financial figures are only analyzed, but the reasons behind the financial distress may not be examined. Therefore, the actions used to turn around a firm may not be right, explains Kärkinen.

According to Kärkinen, both firms and administrators preparing the plans should have enough time and information to examine the reasons behind the financial distress and to prepare efficient reorganization plans.

Small firms in the centre of the reorganizations

Most of the firms are small or very small in Kärkinen’s dissertation as well as usually in reorganizations. Bankruptcy of a small firm can be a difficult situation for the entrepreneur and for its stakeholders. Moreover, successful reorganization is always a better solution for the creditors too, because the remission rate is larger in reorganization than in bankruptcy.

Successful reorganization is thus a jackpot for the firm, its stakeholders and the whole economy. After a successful reorganization a firm can continue its operations normally and the employees can keep their jobs.

Further information

Eija Kärkinen, eija.karkinen@centria.fi

Kärkinen, Eija-Leena (2018). Essays on Efficiency of Reorganization Process – a Life Cycle Approach. Acta Wasaensia 410. Väitöskirja. Vaasan yliopisto. University of Vaasa.

Publication pdf and publication orders: http://urn.fi/URN:ISBN:978-952-476-831-3

Public defence

The public examination of M.Sc. Eija-Leena Kärkinen´s doctoral ”Essays on Efficiency of Reorganization Process – a Life Cycle Approach” will be held on Friday 9 November at 12 o’clock in auditorium Kurten, University of Vaasa. The field of dissertation is accounting and finance.

Professor Iris Stuart (NHH Norwegian School of Economics, Norway) will act as an opponent and professor Teija Laitinen (University of Vaasa) as a custos. The examination will be held in English.

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