This study provides new evidence on the performance consequences of operational restructurings. Although managers claim that restructurings increase the efficiency and profitability of companies, prior studies reached mixed conclusions regarding the post-restructuring operational effectiveness of these events. Our evidence is consistent with the following conclusions. First, restructuring firms appear to perform better in reporting earnings relative to analysts’ forecasts after restructuring. Second, the ability of firms to meet or beat analysts’ forecasts after restructuring appears to be related to real performance improvements after restructuring. Consistent with that conclusion, we find substantial restructuring-related increases in both pre-managed earnings and operating cash flows. Overall, our results are consistent with suggestions of management that restructurings are undertaken to improve operating efficiency over the long term.
Review of Quantitative Finance and Accounting – Springer Journals
Published: May 1, 2014
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