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CEO Advice Seeking and the Failure Escape: The Role of the CEO Entourage in Corporate Restructuring

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  • Rachid Achbah

    (UL2 UFR SEG - Université Lumière - Lyon 2 - UFR de Sciences économiques et de gestion - UL2 - Université Lumière - Lyon 2)

Abstract

Advice seeking is one of the most fundamental practices in real-life decision-making and is a prevalent mode of knowledge acquisition at the upper echelons. Executives may seek advice from within and outside the organization's boundaries, which can affect the organization's overall direction. In this study, we examine the effect of the CEO's environment through advice seeking in managing the firm's financial difficulties. We use three advice-seeking modalities (source, intensity, and diversity) to theorize about the CEO's consciousness of insolvency risk and the restructuring decision. Our predictions are tested using a sample of 407 French SMEs in financial distress in the Rhône-Alpes region. The sample is drawn from the PLAN-PME database, constructed by the COACTIS research team from 2009 to 2013. The results indicate that the CEO's internal (TMT) and external advice-seeking intensity positively affect the CEO's consciousness of insolvency risk and the restructuring decision. The results also show that the functional diversity of TMT members positively moderates the relationship between the CEO's advice-seeking intensity and their consciousness of insolvency risk. In contrast, we found a negative moderating effect of diversity in external advice seeking. By examining the management of financial distress from the perspective of the manager's entourage via advice seeking, we take the first steps toward a more realistic and general understanding of this phenomenon.

Suggested Citation

  • Rachid Achbah, 2023. "CEO Advice Seeking and the Failure Escape: The Role of the CEO Entourage in Corporate Restructuring," Post-Print hal-04279974, HAL.
    • Handle: RePEc:hal:journl:hal-04279974
    DOI: 10.5465/AMPROC.2023.17986abstract
    as

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