This study delves into the complex landscape of business restructuring, focusing on the significant challenges posed by bankruptcy, particularly for small and medium-sized enterprises (SMEs). Retrenchment, a crucial strategy in existing literature, involves cost-cutting measures and employee downsizing, while insolvency proceedings provide a legal avenue for comprehensive financial restructuring. Using a bivariate probit model, our Analysis explores the interdependence of these strategies and their impact on firm survival. Drawing on a dataset from firms in the Rhône-Alpes region, the study reveals consistent negative associations between sales, profitability, and availability with the initiation of both insolvency proceedings and retrenchment. Supplier liabilities, on the other hand, exhibit a positive association with both strategies. The Analysis identifies shared explanatory variables, confirming the correlation between insolvency proceedings and retrenchment. Moreover, the study unravels a reciprocal causal relationship between these strategies, providing valuable insights for navigating the intricate landscape of business restructuring.
