Performance%20shocks,%20turnaround%20strategies%20and%20corporate%20recovery:%20Evidence%20from%20Australia

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Performance shocks, turnaround strategies and
corporate recovery Evidence from Australia

• Alfred Yawson
• The University New South Wales

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Motivation

• Firms are expected to adopt turnaround (financial
  and corporate) strategies when they experience
  performance shocks.
• Turnaround actions include
• Financial strategies
• Corporate restructuring strategies

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Motivation

• Do firms adopt turnaround strategies to deal with
  performance shocks?
• Do turnaround strategies result in performance
  improvement? (contemporaneous and/or lagged)
• Is there any interaction effect of turnaround
  actions on firm performance?

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Related literature

• Firms review their financial strategies following
  performance declines (Slatter, 1984 Ofek, 1993
  Chowdhury and Lang, 1996).
• Financial leverage (Ofek, 1993, Kahl, 2002)
• Operating expense (Slatter, 1984)
• Revenue growth (Pant, 1987)
• Dividend payment (Ofek, 1993 Grullon et al,
  2002 Lie, 2004)
• Working Capital (Slater, 1984)

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Related literature

• Firms adopt Corporate restructuring strategies
  following performance shocks (Ofek, 1993 Kang
  and Shivdasani, 1997 Denis and Kruse, 2000).
• Change of management (Denis and Kruse, 2000,
  Warner et al., 1988 Ofek, 1993)
• Employee layoffs (Inverson and Pullman, 2000
  Chen et al 2001, Denis and Kruse, 2000)
• Asset sales (Kang and Shivdasani, 1997)
• Divestitures (John and Ofek, 1995, Denis and
  Shome, 2004, Denis and Kruse, 2000)

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Data

• Financial data sourced from FinAnalysis database
  restructuring data from SDC and Signal G
  announcements.
• Firm performance higher than industry average in
  one year but fall below the industry average the
  following year (Kang and Shivdasani, 1997, Denis
  and Kruse, 2000)
• Identify 415 Australian firms that experienced
  performance shocks from 1992 to 2000.
• Eliminate 17 firms because they experienced
  financial distress prior to shock (Ofek, 1993) .
• Checked the impact of new CEOs on performance
  shocks (Pourciau, 1993)
• Final sample Year 0 399, 1 395 firms, Year
  2, 388, Year 3, 367 firms

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Analysis of firm performance
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Financial strategies following performance shocks
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Impact of financial strategies
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Corporate restructuring activities following
performance shocks
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Determinants of corporate restructuring
activities following performance shocks
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Impact of corporate restructuring strategies
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Complementary impact of restructuring
strategies/robustness checks
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Interaction effects
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Conclusions/Implications

• Efficiency gained through proper adjustment to
  financial policies (eg., financial leverage and
  operating expenses) result in a negative
  contemporaneous effect on firm performance
• Corporate restructuring activities (eg. Layoffs
  and divestitures) have lagged impact on
  performance improvement
• The interaction of financial and restructuring
  activities may result in an incremental impact on
  firm performance
• Performance shocks are reversible but through
  proper use of financial and corporate
  restructuring strategies
• Management can use the analysis as a guide to
  designing turnaround actions to deal with
  performance shocks