Market Reactions to Corporate Restructurings

This article examines the stock price reactions to restructuring announcements by the DJIA 30 corporations over the period 1988–1995 by employing the event study methodology and cross-sectional regression analyses. Corporate restructurings, historically regarded as highly unusual accounting events, became increasingly common after 1987. One probable cause is the discretionary power managers enjoy due to the flexibility allowed by the Accounting Principles and Financial Accounting Standards Boards. Our general findings are that, contrary to contemporary press comments, restructurings, especially those impose a charge against the firm's earnings, are typically associated with negative excess returns. This evidence seems to be consistent with the notion that restructurings reveal unfavorable information of the firm's future performance. Furthermore, the larger the size of the restructuring amount announced in the Wall Street Journal, the more negative the stock price reaction is.     

重大资产重组核准制效果研究北大核心

2014年,证监会对《上市公司重大资产重组管理办法》进行了第二次修订,修订前上市公司所有的重大资产重组都需要得到证监会核准,而修订后现金支付的重大资产重组不再需要证监会核准。本文以此次修订作为准自然实验,选取2007—2018年中国A股上市公司作为收购方参与的重大资产重组事件为研究样本,研究原本需要核准但因政策放松不再需要核准的重大资产重组事件的绩效变化。研究发现,相较于对照组,放松核准后的重大资产重组虽然数量显著提高,但绩效有所降低并具有异质性:放松核准后重组绩效下降的情况在收购方第二类代理问题较严重和成长性较低的重组事件中更加显著,而对于成长性较高的企业,放松核准却会提高其重组绩效。进一步研究表明,放松核准后,收购方进行跨省和跨国重组的可能性增大,但这两种重组的绩效降低;放松核准还增加了重组后商誉减值的可能性。本文结论表明,放松核准可以有效地激发市场活力,但依然存在相关因素影响市场化改革。     

Post-restructuring performance in Japan

Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in “evergreening”. Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.     

On post-IPO stock price performance: A comparative analysis of RLBOs and IPOs

This is the first study to examine the post-IPO stock price performance by differentiating between IPOs and three types of RLBOs (i.e. public-to-private (or re-IPOs), division-to-private, and private-to-private deals). We document that public-to-private RLBOs outperform their industry rivals, IPOs, mature firms in comparable industries, and a propensity-score matched control group for up to five years post-offering. Further, we document that, within RLBOs, public-to-private RLBOs, outperform private-to-private and division-to-private RLBOs. We also find support for the underwriter signaling effect for public-to-private RLBOs. Our analysis identifies for the first time what private period restructuring activities contribute to superior post-re-IPO stock price performance. Further, the beneficial effects of private period restructurings are enhanced for deals associated with prestigious underwriters. Our findings suggest that first IPOs and re-IPOs differ substantially in term of post-offer performance, the impact of prestigious underwriters on performance, and performance over time.     

Restructuring Using Operating Asset Exchanges: Issues and Evidence

This study examines restructuring in which a firm divests an operating asset in exchange for another operating asset. Since liquidity, capital structure, and distributional issues are not immediately associated with tax‐free asset‐for‐asset exchanges, they are well suited for examining the competing hypotheses related to divestitures. We find that the abnormal returns associated with asset exchanges are generally smaller than those associated with other divestiture restructurings except when indications of value are provided. Our analysis identifies positive valuation effects for firms undertaking focus‐enhancing exchanges, but a dominating consideration is whether the value of the units traded is indicated.     

The Determinants of the Amount of Information Disclosed about Corporate Restructurings

This paper examines the information voluntarily disclosed about corporate restructurings. In 1995 the FASB's Emerging Issues Task Force reached a consensus opinion about mandatory restructuring disclosures. I use these requirements to construct a statistic that measures the amount of information voluntarily disclosed for a sample of firms from 1990–1993. Disclosure levels increased dramatically when the SEC targeted restructurings as an area for increased oversight in late 1993. Controlling for this SEC action, I document a positive association between the amount of information disclosed and increased monitoring by shareholders, suggesting that monitoring complements disclosure rather than substitutes for it. The amount disclosed is negatively related to the appointment of a new CEO prior to the restructuring, perhaps reflecting the use of the restructuring charge to manage earnings for these firms.     

An examination of restructuring charges surrounding the implementation of SFAS 146

This paper provides evidence on how the adoption of Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), has changed (1) restructuring-related earnings management, (2) the effect of restructurings on future operating performance, and (3) stock price responses to restructuring announcements. I find that restructuring charges reported after SFAS 146 have a weaker association with smoothing behavior. More importantly, I document that an improvement in future earnings following a normal restructuring charge is attenuated under SFAS 146, consistent with the standard’s adoption resulting in smaller and more frequent (i.e., more persistent) restructuring charges. I further document that the market places a higher valuation multiple on restructuring charges in the post-SFAS 146 regime, compared to the pre-SFAS 146 regime. Therefore the overall results suggest that the market appears to understand the higher persistence of restructuring charges reported under SFAS 146 and values the charges accordingly.     

EXTERNAL CAPITAL MARKET CONTROL, CORPORATE RESTRUCTURING, AND FIRM PERFORMANCE DURING THE 1980s

The corporate restructuring activity of the 1980s, sparked by potential external capital market intervention, is believed to have been primarily directed at correcting the diversification mistakes of the 1960s and 1970s, which had led to poor corporate performance. Assuming that investor gains from corporate restructurings are unbiased expectations regarding future efficiency gains, many researchers concluded that the market for corporate control is an efficient external control mechanism and that the restructuring programs of the 1980s will, on average, be followed by substantial improvements in corporate performance. To examine whether those improvements were achieved, this paper analyzes the long-term operating and financial performance of the 50 most aggressive US participants in the takeovers and corporate restructuring activity during the 1980s. The results support the hypothesis that the market for corporate control is an efficient external corporate control mechanism of last resort.     

Voluntary sovereign debt exchanges

We show that some recent sovereign debt restructurings were characterized by (i) the absence of missed debt payments prior to the restructurings, (ii) reductions in the government's debt burden, and (iii) increases in the market value of debt claims for holders of the restructured debt. Since both the government and its creditors are likely to benefit from such restructurings, we label these episodes as “voluntary” debt exchanges. We present a model in which voluntary debt exchanges can occur in equilibrium when the debt level takes values above the one that maximizes the market value of debt claims. In contrast to previous studies on debt overhang, in our model opportunities for voluntary exchanges arise because a debt reduction implies a decline of the sovereign default risk. This is observed in the absence of any effect of debt reductions on future output levels. Although voluntary exchanges are Pareto improving at the time of the restructuring, we show that eliminating the possibility of conducting voluntary exchanges may improve welfare from an ex ante perspective. Thus, our results highlight a cost of initiatives that facilitate debt restructurings.     

Diversification,Refocusing and Firm Value

At any point in time a firm faces three restructuring choices: diversify, refocus, or do nothing. This study analyses the causes and the consequences of these actions in a unified framework using the appropriate methodologies. Various factors, such as firm's characteristics and multinational nature, its industry's characteristics, its exchange and index inclusion, and divested (or acquired) segment(s)' industry conditions, are considered as the determinants of the diversifying and the refocusing decisions. The estimation results from the corresponding multinomial logit model suggest that refocusing occurs generally due to firm‐specific reasons, and diversification due to outside factors, such as industry and economic conditions. Added or dropped segment's industry profitability, its relationship to the core business of the firm, and its relatedness to the businesses of the conglomerate's other segments have a nontrivial effect on either decision. In a related analysis, the paper explicitly models and estimates the valuation consequences that are sustained by the firm after it undertakes a refocusing or a diversification action. To isolate the changes in firm's value that are due to these decisions only, a 2SLS estimation is used to control for endogeneity that arises because the factors that affect a firm's value are likely to have also induced the firm to make the corresponding decision. The novelty of my approach is in its inclusion of variables measuring the consequences due to both actions, the diversification and the refocusing, in the same valuation equation. Contrary to some earlier findings, I find no evidence of ‘diversification discount’ or ‘refocusing premium.’ The choice of this paper to analyse all corporate restructuring decisions in a unified framework yields valuable business insights into the reasons for undertaking such corporate events.     

THE WEALTH EFFECTS OF TRACKING STOCK RESTRUCTURINGS

We provide a comprehensive examination of the post‐issue wealth effects of 29 completed tracking stock restructurings. We document that for the parent stock and for the combined firm, tracking stock restructurings lead to insignificant long‐term excess returns. However, we find that shareholders of tracking stocks realize significant post‐issue wealth losses. Unlike spin‐offs and carve‐outs, announcements of tracking stock restructurings are preceded by negative one‐year excess returns, and unlike the positive post‐issue long‐term excess returns to spin‐off stocks and the insignificant long‐term excess returns to carve‐out stocks, tracking stocks experience negative long‐term excess returns.     

Lifting the Veil on Reverse Leveraged Buyouts: What Happens During the Private Period?

We document the different types of restructuring activities undertaken during the private period after the reverse leveraged buyout (RLBO) of previously public firms. Preceding the LBO, firm leverage significantly exceeds that of their peers, while their profitability is better than the industry. However, despite their superior performance, these firms are undervalued before going private. While private firms undertake value‐enhancement measures by increasing employee productivity, asset restructuring, decreasing cost of goods sold, and increasing ownership concentration. Enhanced valuation at the RLBO is a result of value capture, as well as efficiencies obtained from restructuring activities. We also identify factors determining the private period duration.     

The European Union preventive restructuring framework: A hole in one?

While traditionally (Continental) Europe has not been known for an in particular debtor‐ or restructuring‐friendly insolvency practice, in recent decades, important reforms were implemented that would foster restructurings in Europe. In this article, we comparatively look a the status quo of insolvency and restructuring practice in five different European countries (Denmark, France, Germany, Netherlands, UK). We place our observations into the context of the preventive restructuring directive, to be implemented within the next two years after its publication on 26 June 2019. The directive leaves quite some room implementation, from a watered‐down restructuring tool with high access threshold to a pre‐insolvency debtor‐friendly US‐style restructuring procedure.     

Evidence on the Incremental Information Contained in the Components of Restructuring Charges

Among the new disclosures required by EITF 94–3 is the requirement that firms disclose the nature and amounts of the material components of a restructuring charge. The objective of this paper is to assess whether these components provide information to financial statement users beyond that contained in the aggregate charge. The evidence is consistent with the decomposition of the charge providing incremental information that would be lost if only the aggregate number is reported. The results also appear to suggest that analysts interpret restructurings as bad news and that inventory writedowns and employee terminations are interpreted as the most negative restructuring components.     

Product Market Competition and Shareholder Rights: International Evidence

This paper examines the interaction between product market competition and international differences in shareholder rights in relation to firm performance and corporate policies. In contrast to existing literature, we provide evidence of complementarities between product market competition and country shareholder rights protections. The benefits of shareholder rights protections for firm performance are conditional on the presence of a competitive industry environment. We find that stronger shareholder rights protections are associated with better firm performance in competitive industries. However, this relation is not significant in concentrated industries. Consistent results are obtained from the analysis of key corporate policies.     

Corporate governance and manager turnover: An unusual social experiment

This paper examines empirically the quality of the governance mechanisms of Chinese state-owned enterprises from 1994–1999, a period marked by substantial changes in policies affecting the governance structure of these firms. It shows that the restructuring of these enterprises according to corporate law improved the effectiveness of their governance system. Specifically, restructuring strengthened the links between manager turnover and firm performance. The results indicate that firm performance was significantly and negatively related to manager demotion for incorporated state-owned enterprises, while this relationship was insignificant for unincorporated enterprises. They also indicate that manager turnover was a viable incentive mechanism for improving future enterprise performance.     

The value relevance of corporate restructuring charges

We document in this study that investors react positively to restructuring that is expected to be successful in improving firm performance. Investors’ reaction is significantly negative to unsuccessful firms when the magnitude of restructuring charges is high. Our results also show that investors’ reaction is significantly positive to restructuring that is intended to save costs through “workforce reduction” and “facility closings/consolidations”, but it is insignificant when restructuring is undertaken to recognize decline in asset values by asset write-offs and/or write-downs. Investor reaction is measured by 12-month buy-and-hold abnormal returns, whereas successful restructuring to improve the firm performance is based on the change in operating performance, measured by the industry-adjusted return on equity (ROE), over two subsequent years after restructuring.

The Determinants of Corporate Trade Credit Policies in a Bank‐dominated Financial Environment: the Case of Finnish Small Firms

This paper examines trade credit policies of small firms operating in a bank‐dominated environment (Finland). We find that creditworthiness and access to capital markets are important determinants of trade credit extended by sellers. The level of purchases is positively correlated with the level of accounts payable. Larger and older firms and firms with strong internal financing are less likely to use trade credit, whereas firms with a high ratio of current assets to total assets, and firms subject to loan restructurings use it more. Negative loan decisions by financial intermediaries increase and a close bank‐borrower relationship decreases the probability that a firm does not take advantage of trade credit discounts.     

Dynamic Contracting with Intermediation: Operational,Governance, and Financial Engineering

Private equity funds intermediate investment and affect portfolio firm performance by actively engaging in operational, governance, and financial engineering. We study this type of intermediation in a dynamic agency model in which an active intermediary raises funds from outside investors and invests in a firm run by an agent. Optimal contracting addresses moral hazard at the intermediary and firm levels. The intermediary's incentives to affect firm performance are strongest after poor performance, while the agent's incentives are strongest after good performance. We also show how financial engineering, that is, financial contracting with outside investors, interacts with operational and governance engineering.     

Factors influencing the role of management accounting in the development of performance measures within organizational change programs

Many companies are undergoing organizational changes encompassing innovative approaches to organizing production processes, restructuring work practices and developing new planning and control mechanisms. This paper explores the role that management accounting played in the development of performance measurement systems within five organizations implementing change programs. The major case study is of a large manufacturing firm undertaking changes which included the development of team structures, the adoption of a customer-focused strategy and the implementation of new performance measurement systems. In this company, a lack of integration of operational performance measures with strategic priorities contributed to poor integration of team activities with overall strategy. The paper proposes five interrelated factors that may help explain the extent to which management accountants contribute to the development of integrated performance measures and change programs. Case evidence drawn from a further four firms is presented to provide some validation of conclusions drawn from the primary case study.