Some research has shown that being in financial distress may not be all bad news for an entity because:
A) Investors will see this as an opportunity to buy into a company that can really only improve.
B) Existing managers will want to be released from their contracts allowing new ideas to be employed.
C) There will be no requirement to consider the social costs of retrenching employees because the accounting numbers show it is necessary.
D) It will provide the stimulus to rethink activities that may in turn lead to improved future performance.

Question

Quizplus · Accepted Answer

Financial distress can provide the stimulus for a company to rethink and improve its activities, which can lead to improved future performance. This may require difficult decisions such as restructuring and cost-cutting, but ultimately it can benefit the organization in the long run. Options A, B, and C are not supported by research and have potential negative consequences for employees and stakeholders.

Some Research Has Shown That Being in Financial Distress May