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

Restructuring and Firm Value: The Effects of Profitability and Restructuring Purpose 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

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

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References (20)

Publisher
Wiley
Copyright
Copyright © 2000 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00348
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Business Finance & AccountingWiley

Published: Nov 1, 2000

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