DON’T LEAVE ME THAT WAY THE INSOLVENCY OF ESCADA AND A LACK OF CONSEQUENCE IN DIVESTING A SUBSIDIARY

Over the course of only some twenty years, Munich-based ESCADA AG became one of the most renowned brands in the luxury fashion industry and generated almost €1bn in sales at its peak. During an ongoing crisis in the new millennium which finally led to the company’s bankruptcy in 2009, ESCADA missed an optimal point in time to divest itself of its non-core segment PRIMERA AG which accounted for roughly one third of its total sales. In this paper we explain the causes of management’s disposal hesitation with behavioral finance phenomena such as loss aversion, escalating commitment and status quo bias. This case study therefore illustrates the strong influence that psychological effects and a non-efficient market for corporate control can exert on financing decisions in a real-life corporate scenario.