Discussion of Performance Shocks, Turnaround Strategies and Corporate Recovery - Alfred Yawson

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Discussion ofPerformance Shocks, Turnaround
Strategies and Corporate Recovery- Alfred Yawson

• By
• Vidhan K. Goyal
• Hong Kong University of Science Technology

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What is the paper about?

• Examines how firms respond to performance
  declines.
• Changes in financial strategies
• Leverage, dividend policies, operating expenses,
  revenue growth, working capital
• Restructuring
• Divestitures (asset sales), employee layoffs, new
  CEO appointments
• Impact of these turnaround strategies on
  subsequent performance

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Comments - Sample

• Understanding the sample firms
• Papers methodology
• Firms are included if their industry adjusted
  operating performance goes from positive in one
  year to negative in the next year.
• The sample probably includes firms that are
  profitable but underperformed the industry in a
  particular year.
• Is restructuring an optimal response for these
  firms?
• Are these transitory declines in performance?

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Comments - Sample

• Provide a better understanding of what caused the
  performance decline.
• Absolute performance measures
• Stock returns and Market/Book ratios
• Case-studies or a brief descriptive table
  indicating what caused these firms to suddenly
  under-perform their industry.

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Comments Financial Strategies

• Would earnings management be a concern?
• Median differences in Table 5 shows that
• Revenue growth increases while operating expenses
  go down. Consistent with improvement in EBITDA.
• However, working capital increases.
• Could also explain why financial strategies have
  short term impact.
• Examine sub-samples of firms that do not divest.

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Comments Corporate Restructuring Activities and
Firm Performance

• Some questions
• Regressions include both asset sale and
  divestiture. How does one distinguish between
  asset sale and divestiture?
• It is not clear why asset sales result in a
  decline in performance.
• Would year 0 EBITDA reflect the performance of
  the combined firm while year 1 EBITDA reflect
  performance of the remaining firm (following the
  asset sale)?

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Comments Interaction Effects

• Motivation for Table 10 interaction effects.
• For example, a one percent revenue growth should
  have the same impact on performance regardless of
  whether the firm has a new CEO or an old CEO.