Firms in Economic Distress: Survival Strategies and Economic Factors

Abstract

Based on a large data set containing over 300,000 Chinese firms and detailed micro-level information, this paper conducts an empirical analysis of firms in distress. We focus on economic distress rather than financial distress; we study unlisted firms in an emerging market rather than listed firms in a developed economy. We first identify the economic factors that are important for distressed firms’ survival. We then identify three main survival strategies: reliance on fixed assets, reliance on intangible assets, and reduction of costs. We show a critical role of marketization in a developing economy, where marketization includes market competition, financial access, institution quality, and the private sector’s market share.