Final answer:
Common reasons for defaulting under performance bonds include financial mismanagement, revenue decline, market instability, and wider economic issues, which can lead to an issuer's bankruptcy.
Step-by-step explanation:
The question concerns reasons for defaulting under performance bonds, which are financial guarantees that oblige the bond issuer to make promised payments over time. A default occurs when the issuer fails to make these payments due to financial distress, which might lead to bankruptcy. Bondholders may then push for bankruptcy proceedings to recover their investments by selling off the issuer's assets. Significant reasons for default include poor financial management, a decline in revenue, market volatility, and sometimes even macroeconomic factors that can strain an entire industry or economy. A smart strategy to mitigate the risk of default is diversification, where investors spread their risk across various bonds or companies. This way, the impact of a few firms defaulting is compensated by the performance of others.