Turnaround Strategies and Post-Distress Performance: An Empirical Study of Eurozone

Abstract: We extend the study of turnaround plans and distressed securities into the eurozone markets and perform an empirical analysis on relationships between turnaround plans and post-distress performance of distressed firms, using 88 distress cases selected based on Altman's Z''-score. We find that in spite of industry growth influence, the financial restructuring is negatively related to the possibilities of the firm's recovery of Z''-score, operating margin and EBITDA, for which financial contract reconstructing and new financing resource are more responsible. Portfolio restructuring shows an adverse relationship with the Z''-score recovery but no significant association with operating margin and EBITDA recovery. We use stock price resurgence to assess the post-distress market performance, where our results suggest organizational restructuring has a negative relationship with the firm's post-distress positive return. Management turnover and blockholder change display little evidence of saving the distressed firms.