Should Declining Firms Be Aggressive During the Retrenchment Process

In this study, we test the effects of retrenchment aggressiveness on turnaround performance. Using the downward-spiral, threat-rigidity, and survivor syndrome perspectives, we hypothesize the direct effects of the two dimensions of aggressiveness-time aggressiveness and volume aggressiveness-on turnaround performance. We also examine the moderation effect of time aggressiveness on the relationship between volume aggressiveness and turnaround performance. We use data on a sample of declining firms collected from the Compustat North America database and use a matched-pair sample of 494 surviving and nonsurviving firms between the years 1990 and 2010. Our results show that time aggressiveness has a positive effect on turnaround performance, whereas volume aggressiveness has a negative effect. We also find that time aggressiveness positively moderates the negative relationship between volume aggressiveness and turnaround performance. We contribute to the scant but critical literature indicating the importance of time in a turnaround setting and to the long-held discussion of retrenchment as a cause of turnaround or a consequence of decline.