Marketing capability and the turnaround of financially distressed firms

Abstract

Financial distress befalls even well-managed firms, many of which find ways to turn around. Hence, it is pertinent to explore how distressed firms recover. Unfortunately, extant research sheds little light on the role of marketing in enabling distressed firms’ turnaround. Using a longitudinal dataset of U.S. firms, we empirically show that when the source of distress is firm-specific, it is marketing capability (as opposed to R&D and operations capabilities) that enables a turnaround. However, when distress is industry-driven, R&D capability is also beneficial. Further, although operations capability and cost-reduction actions do help distressed firms survive, they do not help firms regain financial well-being. Overall, these results highlight the importance of capabilities in the context of distressed firms and have implications for both firm managers and shareholders.