The value relevance of corporate restructuring charges

Bikki Jaggi, Beixin Lin, Suresh Govindaraj, Picheng Lee

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)101-128
Number of pages28
JournalReview of Quantitative Finance and Accounting
Volume32
Issue number2
DOIs
StatePublished - 1 Feb 2009

Keywords

  • Facilities closings
  • Restructuring charges
  • Value relevance
  • Workforce reduction

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