An Exploratory Examination of the Relationship between Investment Levels in Intangible Market-Based Assets and Liquidation for Financially Distressed Firms

Abstract

Working with a sample of both manufacturing and non-manufacturing firms that filed for bankruptcy protection, the current study examines the relationship between investments in intangibles and the likelihood that the firm will either be reorganized or face liquidation. Results for the manufacturing sub-sample show that investments in intangibles do not increase the likelihood of firm reorganization. Similar results were found for the non-manufacturing sub-sample as well. In fact, the results seem to suggest that financially distressed firms that were ultimately liquidated actually tended to over-invest in intangible assets. Specifically, liquidated manufacturing firms appeared to over-invest in R&D whereas liquidated non-manufacturing firms appeared to over-invest in advertising.