The value relevance of corporate restructuring charges
Bikki Jaggi Æ Beixin Lin Æ Suresh Govindaraj Æ Picheng Lee
Published online: 3 April 2008
Ó Springer Science+Business Media, LLC 2008
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 signiﬁ-
cantly 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/consolida-
tions’’, 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.
Keywords Restructuring charges Á Value relevance Á Workforce reduction Á
JEL Classiﬁcations G1 Á G34 Á M4
Data availability: The data used in this study are publicly available from the sources indicated in the article.
B. Jaggi (&)
Department of Accounting and Information Systems, Rutgers Business School – Newark and New
Brunswick, Rutgers University, Janice H. Levin Building, Piscataway, NJ 08854-8054, USA
School of Business, Montclair State University, Montclair, NJ, USA
180 University Avenue, Newark, NJ 07102, USA
Lubin School of Business, Pace University, Pleasantville, NY, USA
Rev Quant Finan Acc (2009) 32:101–128