Financial Distress and Bankruptcy Costs

Since the crisis of the 1930s and the early work of writers such as Fitzpatrick (1932), the problem of failure has become a field of investigation and research in its own right. According to Franks and Sussman (2005), a firm is defined as being in distress once the local branch or regional credit manager decides to transfer a status report to the monitoring unit of economic enterprises or responsible financial diagnosis. Such decisions may occur, especially for SMEs, in the case of violations of certain terms (non-payment of interest exceeding the overdraft limit ...) or following a poor assessment of the future of the firm by directors of credit (by reference to indicators such as high debt and low profitability). The objective of this chapter suggests analyzing the processes of the financial distress of companies and their impact.