When companies file for Chapter 11 bankruptcy, executives often focus on restructuring debt, selling assets, and negotiating in court. Yet, reorganizations often falter not because of courts or creditors, but because customers lose faith in the business.
When consumers are aware of business bankruptcies, their willingness to pay for the firm’s items drops by as much as 28%, with many people expressing concern that product quality might suffer, says research by Harvard Business School Assistant Professor Samuel B. Antill. This lack of consumer confidence can chip away at the overall value of the firm.
“Why would they care if they buy a shirt from a bankrupt firm?” Antill asks. “But it turns out people care a lot about buying a…