Do Restructurings Improve Post-restructuring Productivity?

Abstract

This study examines how normal and excess restructuring charges affect future productivity. I estimate normal restructuring charges necessitated by economic fundaments using a Tobit model. Next, I estimate post-restructuring firm productivity using Data Envelopment Analysis and investigate how normal and excess restructuring charges are associated with future productivity. Using a sample of 1,182 restructurings by 398 unique U.S. firms, I show that normal restructuring charges lead to improvement in future productivity while excess restructuring charges are associated with lower future productivity. Results also show that investors seem to fail to utilize the information contained in excess restructuring charges.