The Ins and Outs of Corporate Bankruptcy: Choosing Between Internal Development and External Demands

Abstract

This study examined the effects of resource development, resource dependence, and organizational legitimacy on the incidence of bankruptcy using a matched-pair sample of distressed organizations. Consistent with theoretical expectations, both related diversification and the level of discretionary assets at the firm’s disposal negatively related to bankruptcy. Legitimacy, measured by market valuation, mediated the latter relationship, but not the former, suggesting that proper use of internal competencies can offset pressure of lack of support from external constituents.