When firms are dealing with negative earnings and/or economic downturns, operational restructuring is often initiated as a rescue tool. Some firms recover and prevail, while the others fail to survive and are subsequently delisted from stock exchange. The purpose of this paper is to identify factors that are significantly associated with the delisting risk of restructuring firms.
The authors draw on a sample of firms with negative earnings that undertook restructuring during the 2001 economic recession. Logistic regression estimation is used to examine the delisting risk of these firms following the restructuring.
The paper finds that delisting risk increases when firms undertake repetitive restructurings, massive workforce reduction, and large‐scale asset downsizing. Firms with high levels of debt and failure to cut costs and/or narrowing its focus on core competencies are also more likely to delist.
By analyzing and synthesizing the information from empirical data and business experience, this paper provides a guide for managers to effectively plan and implement a restructuring program to improve performance amid an economic downturn.
This is the first study to examine the survivability or delisting risk of a poorly performing firm undergoing restructuring amid an economic recession.
