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Restructuring and Firm Value: The Effects of Profitability and Restructuring Purpose

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  • Inder K. Khurana
  • Barbara Lippincott

Abstract

This study extends prior research on the information content of restructuring charges. We find that the relationship between restructuring activities and returns during the restructuring charge year is different for loss firms than for profit firms. Restructurings that are primarily intended to either eliminate personnel or exit a line of business are positively associated with returns of the loss firms, suggesting that investors view these activities as value‐increasing. In contrast, common stock returns of profit firms exhibit a nonpositive association with restructuring charges. Overall, our results point to the role of the context and the content of the restructuring announcement in the market's assessment of the value relevance of restructuring charges reported in the financial statements.

Suggested Citation

  • Inder K. Khurana & Barbara Lippincott, 2000. "Restructuring and Firm Value: The Effects of Profitability and Restructuring Purpose," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9‐10), pages 1085-1106, November.
    • Handle: RePEc:bla:jbfnac:v:27:y:2000:i:9-10:p:1085-1106:a
    DOI: 10.1111/1468-5957.00348
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    Cited by:

    1. Charles P. Cullinan & Richard Holowczak & David Louton & Hakan Saraoglu, 2023. "Costs associated with exit or disposal activities: A topic modeling investigation of disclosure and market reaction," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 30(4), pages 173-191, October.
    2. Shelagh Campbell & Yingqi Li & Junli Yu & Zhou Zhang, 2016. "The Impact of Occupational Community on the Quality of Internal Control," Journal of Business Ethics, Springer, vol. 139(2), pages 271-285, December.
    3. Sabau Catalin, 2015. "Financial Analysis – From Option To Necessity In The Eu. Company Diagnosis Using Financial Equilibrium Indicators," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 191-198, February.
    4. Lord, Richard A. & Saito, Yoshie, 2017. "Refocusing through discontinued operations in response to acquisitions and diversification," Advances in accounting, Elsevier, vol. 37(C), pages 71-84.

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