Researchers from Monash University, McGill University, and Western University published a new Journal of Marketing study that examines how a bankrupt buyer and its suppliers’ interactions during the buyer’s bankruptcy affect its survival.
The study, forthcoming in the Journal of Marketing, is titled “Buyer–Supplier Relationship Dynamics in Buyers’ Bankruptcy Survival” and is authored by Sudha Mani, Vivek Astvansh, and Kersi D. Antia.
U.S. Chapter 11 bankruptcy filings increased by 68% in the first half of 2023 from a year earlier, with companies such as Party City, Bed Bath & Beyond, and Envision Healthcare filing for Chapter 11 bankruptcy.
A company declaring bankruptcy seeks to reorganize its pre-bankruptcy debt while continuing business operations with the aim to emerge speedily from bankruptcy. Emergence from bankruptcy and the time in bankruptcy are collectively called bankruptcy survival. However, on average, only 50% of companies emerge from bankruptcy.
Mani says that “previous research has highlighted the role of companies’ financial condition before bankruptcy, such as solvency risk, size, debt levels, and marketing expenses, on its bankruptcy survival. However, companies, as buyers of goods and services, continue to interact with their suppliers during bankruptcy and these interactions have been overlooked.”
These interactions happen through acts called motions that either the buyer or its suppliers file in a bankruptcy court. Astvansh explains that “this involves each party providing information to its counterpart by undertaking acts that indicate its intentions, motives, or goals. The counterpart must, in turn, infer the acting party’s intent from the latter’s accommodative and exploitative acts undertaken over time.”
Accommodative and Exploitative Acts
Accommodative acts signal a cooperative intent by making concessions to the counterpart. For example, a bankrupt buyer can file a motion that allows a supplier’s payment to be made immediately rather than waiting until the end of the bankruptcy process. Or a buyer can assume a supplier contract, which confirms the business relationship will continue. Likewise, suppliers can also engage in accommodative acts like filing a “no objection certificate” that supports the buyer’s acts. When one party engages in an accommodative act, it signals to the other party that it intends to collaborate. These acts indicate an emphasis on the relationship.
Exploitative acts signal a competitive stance, with the signaler emphasizing its intent to seek concessions emphasizing its own interests, even if such concessions may not be in the interests of its counterpart. For example, the buyer may decide to reject a supplier contract, thus signaling it wants to discontinue the relationship. A supplier can also engage in an exploitative act like reclaiming goods it had supplied just before the buyer filed for bankruptcy. These exploitative motions signal a competitive intent and that the party filing the motion is pursuing its own interest rather than collaborating.
The research team analyzed nearly 10,000 motions filed by 310 publicly listed buyers and their suppliers over 14 years and demonstrate the key role played by each party’s accommodative and exploitative acts in the buyer’s bankruptcy survival. “We find that an increase in the rate of accommodative acts, or accommodative velocity, improves the buyer’s bankruptcy survival. An increase in the rate of exploitative acts, or exploitative velocity, has the opposite effect,” according to Antia.
These findings indicate that managers should pay attention to the underlying intent that emerges from accommodative and exploitative velocity. High accommodative velocity indicates an intent to cooperate. While high exploitative velocity indicates a competitive intent.
The rate of acts provides more credible information on the party’s intent than one-off acts.
Findings and Lessons for Chief Marketing Officers
Here’s how the rate of accommodative versus exploitative acts affects bankruptcy survival:
- A 1% increase in a buyer’s accommodative velocity improves bankruptcy survival by 39%, while a 1% increase in a buyer’s exploitative velocity decreases bankruptcy survival by 33%.
- Similarly, a 1% increase in suppliers’ accommodative velocity increases the buyer’s survival by 32%, while a 1% increase in their exploitative velocity decreases survival by 28%.
- The positive effect of accommodative velocity on a buyer’s bankruptcy survival is more pronounced when the behavior is consistent.
These findings lead to four vital lessons for bankrupt buyers, their suppliers, and policymakers.
- Buyers and their suppliers should be strategic in their use of accommodative and exploitative acts. To improve the chances of buyer’s bankruptcy survival, they should increase the rate of accommodative acts while reducing the rate of exploitative ones.
- It is important for both buyers and suppliers to realize that the rate of accommodative acts has a greater effect on bankruptcy survival, even though these acts represent only 15% of the motions filed during bankruptcy.
- While the influence of suppliers’ acts on bankruptcy survival is less potent than that of buyers, their effect is nevertheless substantial. Suppliers of companies undergoing bankruptcy should strategically engage with the buyer because this affects the buyer’s bankruptcy survival.
- Policymakers are keen on having suppliers engage in the buyer’s bankruptcy process. However, not all suppliers participate because of the associated costs or a lack of interest. Our findings indicate that the rate of suppliers’ acts affects buyers’ bankruptcy survival, thereby providing evidence in support of increased supplier participation in the bankruptcy process.
Full article and author contact information available at: https://doi.org/10.1177/00222429231193994
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Marilyn Stone is Director, Academic Communities and Journals, American Marketing Association.