It is the goal of this paper to provide an overview of empirical studies that might give evidences on how shareholder value responds to different modes of restruc-turing. Due to the restriction in pages, this study will give an insight in different modes of restructurings but will not go into detail on how corporate restructuring influences the shareholder value for specific regions or industries. Rather, the aim is to present a compact picture of the restructuring results which serve as an “appetizer” for further in depth readings about this topic.
To do so, this paper will approach the subject step by step:
The first part of this paper deals with fundamentals of corporate restructuring. It de-fines the term “shareholder value” and explains different approaches of how an effect of corporate restructuring can be measured monetarily. Furthermore, the term “corpo-rate restructuring” and the different changes in the firm’s portfolio, organization, or capital structure are described and categorized in an easily memorable model. The second part of the paper presents different important empirical studies of whether and how restructuring effects shareholder value. The model, described in the first part, is being employed to structure these findings and is being combined with the positive or negative impacts of the conducted method of restructuring. Lastly, the third part will briefly summarize the introduced effects on shareholder value and will give advice as to which forms of restructuring should be accomplished to enhance the overall economic performance of the firm and therefore the shareholder value.
Table of Content
1 Introduction
2 Fundamentals of Corporate Restructuring – Terms and Definitions
2.1 How to Measure Shareholder Value Creation
2.2 Corporate Restructuring – Definitions and Classifications
2.2.1 Portfolio Restructuring
2.2.2 Financial Restructuring
2.2.3 Organizational Restructuring
3 Empirical Evidence on Value Creation of Corporate Restructuring
3.1 Portfolio Restructuring and Shareholder Value
3.1.1 Mergers and Acquisitions
3.1.2 Spin-Offs
3.1.3 Sell-Offs
3.2 Financial Restructuring and Value Creation
3.2.1 Share Repurchase
3.2.2 Management Buy-Outs (MBOs) and Leveraged Buy-Outs (LBOs)
3.3 Organizational Restructuring and Value Creation
3.3.1 Layoffs, the effect of downsizing a company
3.3.2 Organizational Restructuring of Company Divisions
4 A Guideline to Value Creation
4.1 Information Policy
4.2 Consistency
5 Conclusion and Implications
Research Goal and Objectives
This paper aims to provide an overview of empirical studies examining how corporate restructuring affects shareholder value. It evaluates different restructuring modes—portfolio, financial, and organizational—to determine which actions effectively enhance company performance and satisfy shareholder interests.
- Analysis of empirical evidence regarding the shareholder value effects of corporate restructuring.
- Categorization of restructuring modes into an easily memorable model.
- Distinction between fundamental and perceptual value generation.
- Identification of best practices, such as information policy and consistency, in restructuring.
- Evaluation of short-term and long-term performance impacts of diverse restructuring strategies.
Excerpt from the Book
3.1.1 Mergers and Acquisitions
Most empirical work on portfolio restructuring deals with shareholder value effects of Mergers and Acquisitions. To give a short but comprehensive summary, a separation between the two different kinds of mergers (hostile and friendly) as well as between the acquiring firm (bidder) and the acquired firm (target) has to be conducted. (also see Nail, Megginson, Maquieira 2001, p. 546)
Without exception, the target firm’s shareholders gain the most from a successful acquisition of their company: abnormal returns of more than 15 percent (within a time frame of ten days before announcement until 10 days after announcement, in the following abbreviated -10/+10) or even more than 30 percent (-60/+60) are common (Dodd 1980, Asquith 1983, Nail et al. 2001). When the target is of a hostile takeover, the gains are even higher (Huang & Walkling 1987). It can further be observed, that target firms realize higher shareholder value gains when not market- or product concentric (about 30 percent gain) as opposed to those that have the same product portfolio (about a 27,5 percent gain - calculated as a mean of the findings of Lubatkin 1987 and Nail et al. 2001).
Studies relating to the shareholder value effects to the acquiring parties show inconclusive results. Only some authors found out that the bidding firms gain from a merger or takeover: Jensen and Ruback (1983) for example postulate a shareholder value gain of about 4 percent. Contrarily, an overwhelming majority of research revealed that the shareholders of the bidder firms experience insignificant or even negative effects (e.g. Asquith 1983: +.2%, Malatesta 1983: +.9%, Andrade & Mitchell & Stafford: -.7%, Nail et al. 2001: -1.8%). When pursuing a hostile takeover, the negative effects are even more serious (Huang and Walkling 1987).
Summary of Chapters
1 Introduction: Provides the context of corporate restructuring, highlights its importance in modern management, and defines the scope of the paper.
2 Fundamentals of Corporate Restructuring – Terms and Definitions: Establishes definitions of shareholder value and categorizes restructuring into portfolio, financial, and organizational modes.
3 Empirical Evidence on Value Creation of Corporate Restructuring: Reviews studies on how portfolio, financial, and organizational restructuring impact shareholder value, distinguishing between short-term and long-term effects.
4 A Guideline to Value Creation: Offers practical management advice, emphasizing the role of information policy and consistency in ensuring restructuring success.
5 Conclusion and Implications: Summarizes the findings, noting that financial restructuring generally yields the highest returns, and emphasizes the need for strategic alignment.
Keywords
Corporate Restructuring, Shareholder Value, Mergers and Acquisitions, Portfolio Restructuring, Financial Restructuring, Organizational Restructuring, Spin-Offs, Sell-Offs, Share Repurchase, Management Buy-Outs, Leveraged Buy-Outs, Layoffs, Capital Asset Pricing Model, Signaling Hypothesis, Strategic Alignment
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on the relationship between corporate restructuring and shareholder value creation, providing an empirical overview of how different restructuring actions impact company performance.
What are the three main modes of corporate restructuring identified?
The paper classifies restructuring into Portfolio Restructuring, Financial Restructuring, and Organizational Restructuring.
What is the main goal or research question?
The goal is to provide an empirical overview of how shareholder value responds to different modes of restructuring, serving as an appetizer for deeper research into these topics.
Which scientific methods are used to measure success?
The study reviews empirical research that primarily uses market-based methods, such as examining abnormal stock price returns, and financial measures, like analyzing changes in net cash flow and return on investment.
What topics are covered in the main section?
The main section covers empirical evidence on the value creation of specific strategies like M&As, spin-offs, sell-offs, share repurchases, MBOs/LBOs, and the impact of layoffs and structural reorganizations.
What characterizes this paper's key terminology?
The paper utilizes concepts like shareholder value, informational asymmetry, signaling hypothesis, and strategic consistency to analyze corporate performance.
Why do target firms often experience higher value gains than acquiring firms in M&As?
Target firm gains are driven by competitive bidding processes and the uncovering of hidden assets, while the acquiring firm's shareholders often see neutral or negative effects due to the sheer size difference and costs associated with the acquisition.
What is the impact of organizational restructuring on shareholder value?
Organizational restructuring generally has the smallest measurable impact on shareholder value compared to the other two modes, often serving as a by-product of broader strategic changes.
- Quote paper
- Arne Hildebrandt (Author), 2004, Empirical evidence on shareholder value effects of corporate restructuring, Munich, GRIN Verlag, https://www.grin.com/document/37324
