Does Restructuring Pay in Japan? Evidence Following the Lost Decade

After over a decade of sluggish economic growth accompanied by massive fiscal stimulus and government handouts (not unlike the response to the current global crisis) in the 1990s, it remains an open question whether and how Japanese firms have restructured their operations, and whether these efforts have borne any fruit. The popular consensus is that Japanese companies did start to implement tough restructuring measures at the start of the 21st century, but there is little evidence describing the scope and ultimate efficacy of such measures. Using a randomly selected sample of 300 firms from the Tokyo Stock Exchange, we collect all restructuring announcement made in the aftermath of the so-called lost decade, specifically in the 2000-2001 period. Our results are striking in that while we find that firms engaging in restructuring of various sorts display improved earnings in the period following the restructuring announcement, shareholders do not appear to benefit at the time of the restructuring announcements. Our results are consistent with a model of corporate governance whereby the benefits of restructuring accrue to fixed as opposed to residual claimants, sometimes referred to as a creditor-centric corporate governance system.