Rich Language for Poor Firms: The Symbolic Management of Bankruptcy

While recent research has documented how major corporations can use language and appearance to manage constituent reactions to major corporate activities, little is known about the potential for such symbolic management strategies to affect the prospects for firms declaring bankruptcy.   In this study, we provide a detailed theoretical and empirical analysis of how firms’ symbolic management of four key questions (why, who, how, and what) can generate positive outcomes for bankrupt firms.  Specifically, we show that bankrupt companies can mitigate the stigma of bankruptcy by (1) strategically attributing blame for their failure, (2) publicly acknowledging their alignment with -- and concern for -- crucial external stakeholders, (3) proffering specific plans to address their organization’s weaknesses, and (4) framing the bankruptcy as a deliberately choice, i.e., a strategic opportunity.  We examine how these actions, by accentuating management’s competence and control over the organization’s fate, lead key constituents to provide favorable post-filing support to the bankrupt firm.  To test our predictions, we assemble a unique dataset of 250 bankruptcy cases over three years, using a careful content analysis of the rich language used by firms around the bankruptcy filing.  Our supportive results highlight the importance of active impression management for bankrupt firms, and we conclude with a discussion of the relevance of our contribution to the related literatures on symbolic management, sense-giving, and framing.