Document Type
Article
Publication Date
2014
Keywords
management, financial distress, restructuring
Abstract
Approximately 80,000 businesses fail each year in the United States. This article presents an original empirical study of over 400 business restructuring professionals focused on a critical, arguably contributing factor to these failures—the conduct of boards of directors and management. Anecdotal evidence suggests that management of distressed companies often bury their heads in the sand until it is too late to remedy the companies’ problems, a phenomenon commonly called “ostrich syndrome.” The data confirm this behavior, show a prevalent use of loss framing, and suggest trends consistent with prospect theory. The article draws on these data and behavioral economics to examine the genesis and contours of this problem. It then discusses potential changes to applicable law and introduces a new “meet and confer” process for encouraging timely restructuring negotiations. The meet and confer process is designed to promote meaningful changes in management conduct and to facilitate more “successful failures.” Policymakers should adopt regulations fostering that mentality, rather than rewarding fear or ignorance in the face of failure.
Publication Citation
66 Florida Law Review 205 (2014).
Disciplines
Business Administration, Management, and Operations | Business Law, Public Responsibility, and Ethics | Finance and Financial Management
Digital Commons Citation
66 Florida Law Review 205 (2014).
Included in
Business Administration, Management, and Operations Commons, Business Law, Public Responsibility, and Ethics Commons, Finance and Financial Management Commons