Bankruptcy risk, productivity and firm strategy

Purpose – The purpose of this paper is to examine the relationship between productivity, firm strategy and bankruptcy risk. Design/methodology/approach – This paper uses data envelopment analysis to compute productivity of firms and uses archival data to empirically examine the relationship between productivity, firm strategy and bankruptcy risk. Findings – The results indicate that productivity has a positive effect on reducing bankruptcy risk, and the results also indicate that pursuing either of the generic strategies successfully has a positive effect on reducing bankruptcy risk. The study also brings to light the mediating effect of productivity in the relationship between strategy and bankruptcy risk. Research limitations/implications – The effect of productivity and firm strategy on bankruptcy risk is of importance to external stakeholders such as lenders and investors to evaluate the bankruptcy risk of such a firm. Internal stakeholders (managers and management consultants) will find this study expedient by using productivity enhancements and effective strategy implementation to mitigate bankruptcy risk. Originality/value – This is the first paper to highlight the link between productivity and bankruptcy risk, firm strategy and bankruptcy risk and the mediation effects of productivity on the link between a cost leadership strategy and bankruptcy risk.