The role of corporate governance mechanisms in rescuing distressed SMES

This study applies the theoretical framework of resource dependence to investigate whether corporate governance (CG) mechanisms influence the type of legal procedure selected by distressed small and medium-sized enterprises (SMEs), distinguishing between 'going-concern' and 'liquidation' procedures. Analysing a sample of 1,416 Italian distressed SMEs, this research finds that firms with larger and older boards as well as interlocking directorships are more likely to resort to going-concern procedure, thereby reducing the risk of liquidation. Furthermore, it shows that group affiliation has a significant impact on the survival of distressed firms. This study provides the first evidence to assess the CG factors that increase the likelihood of rescuing a firm in crisis rather than opting for its liquidation through ad hoc legal procedures. Based on an original dataset, it enriches resource dependence theory by providing new insights into a critical stage where appropriate board initiatives can still save the firm. This paper provides a framework for policymakers, supervisors, and shareholders to assess the impact of CG factors on the timely implementation of procedures to rescue firms in crisis. An understanding of these factors is essential for preventing crises from becoming irreversible and for stimulating the timely resolution of emerging problems.