A Comparative Analysis on Turnaround Alternative Dispute Resolution and Civil Rehabilitation

This study investigates the role of turnaround alternative dispute resolution (ADR) in comparison with Civil Rehabilitation. Large firms and firms with more retained losses are more likely to use ADR than Civil Rehabilitation. Highly leveraged firms tend to use Civil Rehabilitation more than ADR. In terms of performance, firms that use ADR firms have lower leverage, better credit scores and higher quick ratios after debt restructuring than firms employing Civil Rehabilitation. Firms that utilize Civil Rehabilitation reduce assets and employment to a greater degree than ADR firms. Operating efficiency improvement and profitability recovery are the same for both treatments. Neither firms utilizing ADR nor those using Civil Rehabilitation reduce trade credit use. These results indicate that economically and financially distressed firms use ADR to restructure their businesses while avoiding financial collapse in bankruptcy.