Research: Should Suppliers Cooperate with Companies Entering Bankruptcy?

After a company petitions for bankruptcy, its attention often shifts toward debt providers (e.g., banks) and away from suppliers — unsecured creditors who are not viewed as a primary provider of corporate debt. New research cautions against such shift in attention. How the buyer behaves toward its suppliers and how the suppliers reciprocate the buyer’s behavior determine whether — and if yes, when — the buyer emerges from bankruptcy, a mutually beneficial outcome.

In July 2023, 362 U.S. companies petitioned for reorganization bankruptcy — a number that has been steadily increasing, perhaps indicating slowing economic growth. In choosing to reorganize their debt and emerge from bankruptcy, rather than liquidate their assets and go out of business, these companies seek a new beginning. Successful and prompt emergence from bankruptcy (collectively referred to as bankruptcy survival) are consequential for the company’s stakeholders, including employees, suppliers, customers, and the community. For example, by one estimate, a bankruptcy-survived company, on average, supports 28,000 jobs and adds $1.75 billion to the gross domestic product.

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