Market Reactions to Corporate Restructurings

Market Reactions to Corporate Restructurings This article examines the stock price reactions to restructuring announcements by the DJIA 30 corporations over the period 1988–1995 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Market Reactions to Corporate Restructurings

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1011288504426
Publisher site
See Article on Publisher Site

Abstract

This article examines the stock price reactions to restructuring announcements by the DJIA 30 corporations over the period 1988–1995 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.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 3, 2004

References

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