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Corporate Reorganizations: Changes in the Intensity of Labor and Capital Expenditures

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  • Marta Ballesta
  • Joshua Livnat
  • Nishi Sinha

Abstract

Using a new measure that indirectly captures a firm's restructuring efforts on the basis of changes in its labor and capital expenditure patterns, this study examines the link between restructuring and financial performance for an international sample of firms during the years 1989–1997. Results show that firms that curbed the growth in labor expense intensity (labor expense relative to sales), regardless of the accompanying changes in sales or in capital expenditure intensity, had significantly higher annual returns (despite having lower profitability) than firms that expanded their labor intensity. Financial market's response to a reduction in labor expense intensity appears to be more favorable if this reduction is accompanied by a reduction in capital expenditure growth when firms face declining sales, and an increase in capital expenditure growth when firm sales are growing.

Suggested Citation

  • Marta Ballesta & Joshua Livnat & Nishi Sinha, 1999. "Corporate Reorganizations: Changes in the Intensity of Labor and Capital Expenditures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9‐10), pages 1205-1238, November.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:9-10:p:1205-1238
    DOI: 10.1111/1468-5957.00294
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    Cited by:

    1. Bo Hansson, 2004. "Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3‐4), pages 333-358, April.
    2. Bo Hansson, 2004. "Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3-4), pages 333-358.
    3. Syed Zulfiqar Ali Shah, 2007. "Discussion of Employee Layoffs, Shareholder Wealth and Firm Performance: Evidence from the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 495-504, April.
    4. David Hillier & Andrew Marshall & Patrick McColgan & Samwel Werema, 2007. "Employee Layoffs, Shareholder Wealth and Firm Performance: Evidence from the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 467-494, April.
    5. Zhiang (John) Lin & Haibin Yang & Irem Demirkan, 2007. "The Performance Consequences of Ambidexterity in Strategic Alliance Formations: Empirical Investigation and Computational Theorizing," Management Science, INFORMS, vol. 53(10), pages 1645-1658, October.

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