We thank Philip Brown, Raymond Da Silva Rosa, Neil Fargher, Janice How, Izan Izan, Debra Jeter, Alan Kilgore, Raymond Liu, Geoffrey Loudon, Sian Owen, Russell Poskitt, Ah Boon Sim, Susan Thorp, Cameron Truong, Peter Verhoeven, Scott Walker, Jilnaught Wong, and seminar participants at the 23rd Australasian Banking and Finance conference, Financial Management Annual Meetings, Orlando, the University of Auckland, Macquarie University, the University of Technology Sydney, and University of Western Australia for helpful comments and suggestions. Naturally, with respect to the article, the usual caveat applies.
Internal Restructuring and Firm Survival†
Version of Record online: 1 MAR 2012
© 2012 The Authors. International Review of Finance © International Review of Finance Ltd. 2012
International Review of Finance
Volume 12, Issue 4, pages 435–467, December 2012
How to Cite
Powell, R. and Yawson, A. (2012), Internal Restructuring and Firm Survival. International Review of Finance, 12: 435–467. doi: 10.1111/j.1468-2443.2012.01151.x
JEL classification: G14; G33; G34
- Issue online: 5 DEC 2012
- Version of Record online: 1 MAR 2012
We examine the impact of two common methods of internal restructuring, layoffs and divestitures on the survival of a sample of UK firms. Using a Poisson regression model, we find that divestitures improve survival likelihood by reducing the probability and speed of market exit via takeover or bankruptcy, whereas layoffs increase the probability and speed of market exit via bankruptcy. Surprisingly, classifying firms into financially distressed and healthy groups, we find that distressed firms are less likely to restructure. Furthermore, while divestitures improve survival likelihood in both groups, layoff firms are less likely to survive, irrespective of whether they are distressed or healthy. Our findings are consistent with event studies that examine the market reaction to layoffs and divestiture decisions, and so provide some support for the view that the market correctly values the consequences of these restructuring actions on firm survival. The results are robust to several econometric and modeling issues, including controlling for potential self-selection bias.