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Market Reactions to Corporate Restructurings

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  • Poon, Percy S
  • Newbould, Gerald D
  • Durtschi, Cindy

Abstract

This article examines the stock price reactions to restructuring announcements by the DJIA 30 corporations over the period 1988-95 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. Copyright 2001 by Kluwer Academic Publishers

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  • Poon, Percy S & Newbould, Gerald D & Durtschi, Cindy, 2001. "Market Reactions to Corporate Restructurings," Review of Quantitative Finance and Accounting, Springer, vol. 16(3), pages 269-290, May.
    • Handle: RePEc:kap:rqfnac:v:16:y:2001:i:3:p:269-90
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    Citations

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    Cited by:

    1. Mary Hill & Peter Johnson & Kelvin Liu & Thomas Lopez, 2015. "Operational restructurings: where’s the beef?," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 721-755, November.
    2. Pearce II, John A. & Robbins, D. Keith, 2008. "Strategic transformation as the essential last step in the process of business turnaround," Business Horizons, Elsevier, vol. 51(2), pages 121-130.
    3. Bikki Jaggi & Beixin Lin & Suresh Govindaraj & Picheng Lee, 2009. "The value relevance of corporate restructuring charges," Review of Quantitative Finance and Accounting, Springer, vol. 32(2), pages 101-128, February.
    4. Berninger, Marc & Gärtner, Henrik & Schiereck, Dirk, 2018. "Kapitalmarktreaktionen auf die Ankündigung von Personalabbauplänen – ein Überblick über drei Jahrzehnte empirische Evidenz," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 72(4), pages 289-325.
    5. Beixin Lin & Rong Yang, 2006. "The effect of repeat restructuring charges on analysts’ forecast revisions and accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 27(3), pages 267-283, November.
    6. Jérôme Hubler & Pierre-Xavier Meschi & Géraldine Schmidt, 2004. "Annonces de suppressions d’emplois et valeur boursière de l’entreprise," Revue Finance Contrôle Stratégie, revues.org, vol. 7(4), pages 107-142, December.
    7. Nishihara, Michi & Shibata, Takashi, 2016. "Asset sale, debt restructuring, and liquidation," Journal of Economic Dynamics and Control, Elsevier, vol. 67(C), pages 73-92.
    8. Yue Liu, 2019. "Shareholder wealth effects of M&A withdrawals," Review of Quantitative Finance and Accounting, Springer, vol. 52(3), pages 681-716, April.

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