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Jan Adriaanse and Jean-Pierre van der Rest

Both in the practical and academic field there is a keen interest in successful corporate rescue. Whereas the focus of attention often is on financial and operational restructuring, little is known about the psychological factors that impact the success of restructuring. These “soft factors”, such as trust in company management, are known to play a decisive role in the turnaround of a failing business yet are poorly understood in the specific context of debt restructuring. What is the role of bankers’ perceptions regarding the ability, benevolence, and integrity of company management, and how are bank lending relationships managed by distressed firms? Also, does openness from the side of bankers positively or negatively influence the chances of company survival? And if so, what is the reason behind that? Based on a review of the extant literature, on archival research, and on an empirical study a conceptual framework is proposed on the role of “soft factors” in distressed firm bank lending relationships. Propositions are developed with regard to the antecedents of the (asset) recovery – continuity/restructuring decision that bankers are confronted with when the outstanding debt obligations are not met. Implications for theory and practice are discussed. Recommendations are given on how to employ trust as a turnaround technique in order to elevate the chances of a successful business rescue.

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Jan Adriaanse, Jean-Pierre van der Rest and Tim Verdoes