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Abstract

Most prior literature has argued that corporate turnarounds’ first objective is to focus on retrenchment with the goal of avoiding further deterioration of the firm’s decline situation. Once firms have ensured their short-term survival, the turnaround activities shift their focus towards recovery. However, recent turnaround studies have questioned this sequential process of retrenchment and recovery and argued for a simultaneous approach. This study analyzes the turnaround behavior of 35 service firms during 2002 and 2003. Our results provide support for the notion that a combination of retrenchment and recovery activities contributes to greater turnaround performance. We respond to prior calls for more turnaround research in service firms and contribute to a more thorough understanding of how to manage the conflicting demands between retrenchment and recovery.

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