An analysis of corporate restructuring in the UK
This thesis examines the operating performance of a sample of UK non-financial firms that announced different forms of corporate restructuring during 1990-2000. Several issues related to restructuring and corporate governance have been examined and empirically tested around the year of restructuring. The findings of this thesis suggest that poor firm performance, high financial leverage and excessive diversification are the main determinants of corporate restructuring. Poor management, agency problems, competition and economic recession are the main causes of these problems. In addition, new evidence is provided on the role of internal and external control systems. It is apparent that these systems work together to ensure that managerial behaviour is consistent with the maximization of shareholder wealth. The findings show that following restructuring there is an improvement in operating performance, financial leverage, labour productivity and firms are more focused. This suggests that restructuring is likely to result in the rectification of inadequate governance patterns, which in turn will create a more focused diversification strategy, increase strategic control, reduce reliance on bureaucratic control through reduced corporate staff, and increase the performance of the firm and shareholder wealth. In addition, a decision to refocus on core businesses may reflect management's termination of negative NPV projects. However, this increase in efficiency is not homogenous to all firms. With reference to the market reaction to announcements of corporate restructuring, the findings show that the market reacts negatively to announcements of corporate layoffs, dividend cuts, and CEO turnover, but reacts positively to asset sales. Further analysis shows that, in general, it is difficult to generalize about whether restructuring is associated witli positive or negative stock prices. This is because restructuring is a complex and multidimensional phenomenon and involves a lot of activities, some of which are interdependent and occur in tandem (Hall, 1994; and Peel, 1995). Secondly, with information disclosure, managers face the challenge of disclosing useful information to investors and analysts that they can use to value restructuring more accurately. However, managers are often limited in what they can disclose publicly because some of the information could benefit their firm's competitors. Information problems arise when corporate managers have private information about their firm's investment opportunities (Nfyers and Nlajluf, 1984), and either cannot credibly convey that information to dispersed investors or can do so only by disclosing proprietary information to competitors (Healy and Palepu, 1995).