Corporate governance and financial constraints on strategic turnarounds

S. Toms, I. Filatotchev

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The paper extends the Robbins and Pearce (1992) two-stage turnaround response model to include governance factors. In addition to the retrenchment and recovery, the paper proposes the addition of a realignment stage, referring specifically to the re-alignment of expectations of principal and agent groups. The realignment stage imposes a threshold that must be crossed before the retrenchment and hence recovery stage can be entered. Crossing this threshold is problematic to the extent that the interests of governance-stakeholder groups diverge in a crisis situation. The severity of the crisis impacts on the bases of strategy contingent asset valuation leading to the fragmentation of stakeholder interests. In some cases the consequence may be that management are prevented from carrying out turnarounds by governance constraints. The paper uses a case study to illustrate these dynamics, and like the Robbins and Pearce study, it focuses on the textile industry. A longitudinal approach is used to show the impact of the removal of governance constraints. The empirical evidence suggests that such financial constraints become less serious to the extent that there is a functioning market for corporate control. Building on governance research and turnaround literature, the paper also outlines the general case necessary and sufficient conditions for successful turnarounds.
Original languageEnglish
Pages (from-to)407-433
Number of pages26
JournalJournal of Management Studies
Issue number3
Publication statusPublished - May 2006

Bibliographical note

© Blackwell Publishing Ltd 2006. This is an author produced version of a paper published in Journal of Management Studies. The definitive version is available at

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