Bankruptcy risk, productivity and firm strategy

The purpose of this paper is to examine the relationship between productivity, firm strategy and bankruptcy risk.

This paper uses data envelopment analysis to compute productivity of firms and uses archival data to empirically examine the relationship between productivity, firm strategy and bankruptcy risk.

The results indicate that productivity has a positive effect on reducing bankruptcy risk, and the results also indicate that pursuing either of the generic strategies successfully has a positive effect on reducing bankruptcy risk. The study also brings to light the mediating effect of productivity in the relationship between strategy and bankruptcy risk.

The effect of productivity and firm strategy on bankruptcy risk is of importance to external stakeholders such as lenders and investors to evaluate the bankruptcy risk of such a firm. Internal stakeholders (managers and management consultants) will find this study expedient by using productivity enhancements and effective strategy implementation to mitigate bankruptcy risk.

This is the first paper to highlight the link between productivity and bankruptcy risk, firm strategy and bankruptcy risk and the mediation effects of productivity on the link between a cost leadership strategy and bankruptcy risk.